The rumors were true, but the deal didn’t come true for Chevronand Texaco. Texaco ended merger talks late Wednesday and released aterse statement as to why.

“The Texaco board found no compelling basis for discussions tocontinue, and Chevron’s proposal to be unacceptable for reasonsincluding complexity, flexibility, risk and price.” Details of themerger talks were not released, but analysts said Chevron wasoffering $70/share for Texaco ($37 billion) while Texaco wanted$80/share ($42 billion).

“I’m surprised that the Texaco board turned down a verycompetitive offer that included a significant price premium toTexaco shareholders and an opportunity to receive Chevron stock,with its acknowledged strong growth prospects,” Chevron CEO KenDerr said in a statement. The companies’ statements were the firsttime either party acknowledged merger discussions.

The secret of Chevron-Texaco merger talks started to become awidely known one when rumors surfaced May 7. On that Friday Texacostock closed up a healthy 5 1/16 on volume more than twice theaverage. The same day, Chevron shares closed down 2 15/16.

J.P. Morgan analyst Jay Wilson said he was not surprised a dealdidn’t come to fruition. “I basically thought that the regulatoryhurdles would wind up being too much, mainly referring to the westcoast downstream businesses. There were some cultural issues. Iknow that I consider Ken Derr at Chevron to be one of the mostshareholder oriented CEOs in the business. I don’t think,especially given the potential regulatory, issues that he wanted tooverpay.”

Wilson said both companies probably are big enough to survive ontheir own, “but I do think that they will both continue to look atall options.

“There are people looking at them, and they’re looking atpeople. I think Unocal may be a good merger partner for either oneof those companies.” Another prospect is Royal Dutch Shell onceit’s completed with its restructuring, he said.

Jennifer Gordon, an analyst with BT Alex. Brown, said one issuehurting the deal is a joint venture between Texaco and Shell thatlikely would have been dissolved at the behest of regulators beforeapproving a deal. “If the goal of the merger is to get bigger, it’snot so clear that would have done it for either one of them,” shesaid.

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