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Texaco to Chevron: Take a Hike

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 overpay."

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 all options.

"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 said.

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