News > Deals
Phillips buys Tosco in $7B deal
February 4, 2001: 5:22 p.m. ET

Phillips deal is the latest sign of consolidation in oil patch
graphic graphic
NEW YORK (CNNfn) - In another sign of consolidation in the oil industry, Phillips Petroleum Co. announced plans Sunday to acquire Tosco Corp. in a stock deal valued at $7 billion.

Under terms of the deal, the Bartlesville. Okla.-based oil company will exchange 0.8 Phillips share for each Tosco share and assume about $2 billion of Tosco's debt. The transaction, which has been approved by both boards, is expected to close by the end of the third quarter of 2001.

In a statement, Phillips and Tosco said the combined company will be the second largest refiner in the United States with 11 refineries, more than 12,400 retail outlets, and annual revenues of nearly $50 billion.

"This strategic acquisition completes our foundation for accelerated and sustainable profitable growth. With our balanced portfolio of assets, scale, and financial flexibility, we can deliver the growth and value that our shareholders expect," Jim Mulva, Phillips' chairman and chief executive officer said in a statement.

The deal, which was announced Sunday, is the latest in a series of transactions that have transformed the oil patch into a smaller group of global players. British Petroleum PLC started the latest merger wave when in acquired Amoco in 1998, followed by Exxon's decision to merge with Mobil and last year's $35 billion deal between Texaco and Chevron.

Tosco, with annual revenues of $28 billion, is the largest independent refiner and marketer of petroleum products in the United States, and is the nation's largest operator of company-controlled convenience stores.

"I am delighted that Tosco is joining the Phillips family," said Tom O'Malley, chairman and chief executive officer of Tosco. "Tosco will now be part of an even stronger platform for growth that will benefit all Tosco shareholders. As Tosco's largest individual shareholder, I fully intend to convert and hold my shares on a long-term basis, and am so confident about the potential of the new Phillips that I expect to increase my holdings."

Phillips said it expects the transaction to boost earnings per share, taking into account anticipated annual savings $250 million and a $1 billion stock buyback. The company said the transaction will be accounted for under purchase accounting.

O'Malley, 59, will become a member of Phillips' board of directors and serve as vice chairman of Phillips' board and chief executive officer of the company's refining, marketing and transportation operations, which will primarily be based in Tempe, Ariz..

Under terms of the deal, Phillips will acquire all of Tosco's operations, including eight U.S. refineries with a total capacity of 1.35 million barrels per day and 6,400 retail outlets in 32 states.

Phillips' current refining and marketing operations include three U.S. refineries with a total capacity of 360, 000 barrels per day, more than 6,000 retail and aviation outlets in 28 states, and 6,000 miles of pipeline. The combined company will be the second largest refiner in the United States and third largest marketer, retailing nationwide under the Phillips 66, the '76, and Circle K brands.

Morgan Stanley served as advisor to Phillips (P: Research, Estimates) and Merrill Lynch advised Tosco. (TOS: Research, Estimatesgraphic