Merger rumors that tweaked the stock prices of Chevron andTexaco have cooled somewhat. While the industry awaits word of adeal (or no deal), observers might consider the words of managementand economics professor Lester Thurow.

“Once a company is in play, Wall Street arbitrageurs can drivethe deal.” Thurow, a Massachusetts Institute of Technologyprofessor who gave the keynote address at NGI’s GasMart/Power ’99in Dallas last week, told NGI merger talk can turn to merger actionas companies are forced to respond to the Street. Obviously, thisis one reason why the first chorus of every merger ballad is “nocomment.”

Word of a Chevron-Texaco pairing hit the market May 7, causing adrop in the shares of presumed acquirer Chevron and a rise inTexaco shares. Market action last Monday saw Chevron rise andTexaco drop. Among obstacles to a deal (expected to value Texaco atabout $42 billion) are the questions of who would head a combinedcompany and the expectation Texaco would surely have to exit someof its U.S. refining and marketing joint ventures with Shell toappease regulators.

At the Howard Weil Energy Conference in New Orleans in April,Texaco CEO Peter Bijur said his company had not ruled out a mergeror acquisition. He told attendees the Texaco of the future will beheavily into high-tech services and be a “high solutions provider.”Bijur said technology and knowledge base are becoming moreimportant than the resource base (see NGI April 19, 1999).

As recently as two weeks ago, Bijur publicly disavowed anymerger plans and made a strong case that it is not necessary togrow larger in order to survive. In his GasMart/Power speech,however, Thurow said only the largest multinational companies willsurvive globalization, and midsize national companies won’t makeit. Texaco and Chevron combined would be about half the size ofShell, currently the third largest major behind Exxon and BP Amoco.

Not surprisingly, neither company was commenting last week.

Joe Fisher, Dallas

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