Texaco to Chevron: Take a Hike
The rumors were true, but the deal didn't come true for Chevron
and Texaco. Texaco ended merger talks late Wednesday and released a
terse statement as to why.
"The Texaco board found no compelling basis for discussions to
continue, and Chevron's proposal to be unacceptable for reasons
including complexity, flexibility, risk and price." Details of the
merger talks were not released, but analysts said Chevron was
offering $70/share for Texaco ($37 billion) while Texaco wanted
$80/share ($42 billion).
"I'm surprised that the Texaco board turned down a very
competitive offer that included a significant price premium to
Texaco shareholders and an opportunity to receive Chevron stock,
with its acknowledged strong growth prospects," Chevron CEO Ken
Derr said in a statement. The companies' statements were the first
time either party acknowledged merger discussions.
The secret of Chevron-Texaco merger talks started to become a
widely known one when rumors surfaced May 7. On that Friday Texaco
stock closed up a healthy 5 1/16 on volume more than twice the
average. The same day, Chevron shares closed down 2 15/16.
J.P. Morgan analyst Jay Wilson said he was not surprised a deal
didn't come to fruition. "I basically thought that the regulatory
hurdles would wind up being too much, mainly referring to the west
coast downstream businesses. There were some cultural issues. I
know that I consider Ken Derr at Chevron to be one of the most
shareholder oriented CEOs in the business. I don't think,
especially given the potential regulatory, issues that he wanted to
Wilson said both companies probably are big enough to survive on
their own, "but I do think that they will both continue to look at
"There are people looking at them, and they're looking at
people. I think Unocal may be a good merger partner for either one
of those companies." Another prospect is Royal Dutch Shell once
it's completed with its restructuring, he said.
Jennifer Gordon, an analyst with BT Alex. Brown, said one issue
hurting the deal is a joint venture between Texaco and Shell that
likely would have been dissolved at the behest of regulators before
approving a deal. "If the goal of the merger is to get bigger, it's
not so clear that would have done it for either one of them," she
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