Texaco Rejects Chevron; Keeps to Solo Path

Thanks, but no thanks. Texaco continues to go it alone after turning down a merger offer from Chevron last week.

"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 shares closed up 5.88/share at 67.25. Chevron closed down 2.92/share at 94.875.

Last Thursday, the first trading day following cessation of merger talks, Texaco closed down 1.69/share at 62.31, and Chevron closed down 1.06/share at 91.56.

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 downstream joint ventures Texaco is involved in with Shell on the East and West Coasts would have garnered much scrutiny from regulators considering a Chevron-Texaco merger. "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.

The pressure has been on Texaco to join the merger growth parade since the BP/Amoco/ARCO and Exxon/Mobil mergers were announced. Chairman Peter Bijur has avoided the subject of another big oil merger, however, saying technology and a knowledge base are becoming more important than a resource base (See NGI, April 19 & May 17). He believes Texaco's future lies in in high-tech services as a "high solutions provider." Bijur also offered shareholders evidence that a stand-alone Texaco can deliver the same savings that other companies are achieving through mergers (See NGI, May 2).

Joe Fisher, Houston

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