After having been told to drop dead by Texaco in a publicstatement released in June, Chevron now apparently is courtingPhillips Petroleum, a smaller prize but still a significantconsolation if accomplished. Reports surfaced over the weekend inthe British Sunday Times in London that Chevron was willing to paya 20% premium and that triggered a 5% spike in Phillips shareprices yesterday. The companies would neither confirm nor deny therumors, but Phillips shares closed up $2.81 yesterday at $56.56,well above its 52-week high. A 20% premium would put the purchaseprice near $17.2 billion. Chevron stock, meanwhile, took a slight88-cent dip yesterday to $92.12/share.

“Overall the pros are the large chemical [operations] overlapand the good fit between the chemicals, but this is not one of thedeals I was excited about in the oil industry” said Edward Jonesanalyst Katie Warne. “Phillips has a great retail network, greatrefineries, but I don’t see them as having great properties on theexploration and production side that some of the other possiblemerger partners might have. And I guess I’m more in the wait andsee mode on this one. It’s clear that Chevron is talking tobasically everybody and Phillips is the instigator in this in termsof looking for someone to do joint ventures with. This doesn’t makeas much sense to me as some of the other ones we’ve talked about inthis industry.

“There had been rumors out there about Chevron and Occidental,which I think makes more sense… While Conoco may have a difficulttime merging in the two-year waiting period after its spin-off[from DuPont], it has much better assets than either one of thesecompanies.”

Nevertheless, given the heated merger activity taking place inthe petroleum producing sector, with BP combining with Amoco, andthe pending BP Amoco-Arco, TotalFina-Elf Aquitane, and Exxon-Mobiltransactions, Phillips should be regarded as a viable candidate forChevron. But until a merger is forthcoming, Chevron’s stock is”unlikely to materially outperform the sector,” said one analyst.He expects a purchase price for Phillips to be about $65/share,which would value Phillips at about $16.5 billion, plus theassumption of its $4.5 billion debt.

Phillips, based in Bartlesville, OK, had a major transactionfall through earlier this year, an $8 billion refining andmarketing deal with Ultramar Diamond Shamrock, so it may be lookingfor a major move to continue the upward momentum triggered by crudeoil’s recent recovery.

Phillips has assets worth $15 billion and a marketcapitalization of $14.33 billion, while Chevron has $36.5 billionin assets and a market cap of $60.43 billion.

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