Chevron, Texaco Merger Creates Top Five Major

Consent order in hand, Chevron Corp. and Texaco Inc. became the latest of the majors to merge, after the U.S. Federal Trade Commission (FTC) gave its approval on Friday. The new company, ChevronTexaco Corp., moves to fifth place on the majors' list, following arduous negotiations that actually began more than two years ago (see NGI, June 7, 1999). The companies finally came to terms last October, and cinched the deal after Texaco agreed to spin off several of its businesses (see NGI, Aug. 13; Oct. 23, 2000).

The $39.3 billion stock deal will give ChevronTexaco a combined enterprise market value of more than $100 billion, assets of $83 billion, net proved reserves of 11.5 Bboe, daily production of 2.7 MMboe and operations around the world. In the United States, ChevronTexaco will become the third largest oil and gas producer. And their Chevron, Texaco and Caltex petroleum products will be marketed in 180 countries. Texaco shareholders will receive .77 shares of the new company's common stock in exchange for each share of Texaco, while Chevron's shareholders will retain their existing shares. It will trade on the New York Stock Exchange under the symbol CVX.

Chevron, which had been number 3 on the majors' list, had $48 billion in revenue in 2000, while Texaco, which was posted as the number two major, had revenue of $51 billion in 2000. Some operations will remain at Texaco's headquarters in White Plains, NY, while Chevron's and most of the merged company's business, will move to new headquarters in San Ramon, CA. Just a few days ago, Chevron stunned the San Francisco business community by announcing it would move across the Bay Bridge to San Ramon, which is north of Oakland.

The major holdup centered around several of Texaco's holdings, especially some in the United States. The companies negotiated the consent agreement with antitrust regulators about Texaco's holdings with the attorneys general of 12 U.S. states, and they also have obtained the other regulatory approvals required from the European Union and other countries where they have major operations.

"Today marks a critically important milestone as we move to establish a premier energy company with world class assets, talent, financial strength and technology to achieve superior results," said David J. O'Reilly, Chevron CEO, who will become CEO of the new company as well.

The integration of the two companies has gone "exceptionally well," said Texaco CEO Glenn F. Tilton. When they receive stockholder approval, he said ChevronTexaco "will be ready to start operating effectively as one company." Shareholder meetings are scheduled for Oct. 9 in Houston. Tilton, who will become a vice chairman along with Richard H. Matzke of Chevron,, added that Texaco was "fully prepared" to comply with the FTC consent order.

To meet the conditions of the consent order, the companies are required to do the following:

Texaco will divest its interests in the U.S. downstream joint ventures Motiva and Equilon. If it is not able to complete a sale of its interest in Motiva to joint partner Royal Dutch/Shell Group and Saudi Refining Inc., and its interest in Equilon to Shell before the merger, it has to place the stock of those subsidiaries in a divestiture trust before the close of sale within eight months of the merger date.

Subject to certain conditions, Texaco has to extend the license of the "Texaco" brand to Equilon and Motiva on an exclusive basis until June 30, 2003 and on a non-exclusive basis until June 30, 2006.

ChevronTexaco has to divest Texaco's interest in the Discovery Pipeline System, located in the Gulf of Mexico, within six months of the merger date, and Texaco will resign as an operator of the pipeline.

ChevronTexaco has to divest Texaco's interest in the Enterprise Fractioning Plant in Mont Belvieu, TX within six months of the merger date.

Texaco also has to divest a portion of its U.S. general aviation businesses, which are located in 14 states.

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