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Phillips, Conoco set merger
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November 19, 2001: 11:40 a.m. ET
Shares of Phillips, Conoco surge on merger to create No. 3 U.S. oil producer
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NEW YORK (CNN/Money) - Shares of both Phillips Petroleum Co. and Conoco Inc. surged Monday as the two agreed to a near $15.2 billion merger that will create the nation's No. 3 oil producer.
The union, which combines two mid-sized oil companies, would rank the combined company behind Exxon Mobil Corp. and ChevronTexaco Corp. in the United States, based on oil reserves.
ConocoPhillips, as it will now be called, will be the sixth largest global integrated oil company, based on reserves and production, analysts said. The company will also rank behind Exxon and BP Amoco, with a 12.5 market share of gas sold in the United States, analysts said.
News of the deal pushed Phillips (P: up $0.49 to $52.31, Research, Estimates) stock up nearly 3 percent in late morning trading Monday while Conoco (COC: up $0.46 to $24.76, Research, Estimates) surged nearly 4 percent.
The stock swap to create ConocoPhillips was announced jointly Sunday. It.
"This is really a growth story for Conoco and Phillips," said Conoco Chairman Archie Dunham, who is delaying his planned retirement to serve as chairman of the combined company.
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CNNfn's Deborah Marchini talks with Conoco's CEO Archie Dunham and Phillips chairman James Mulva about the deal.
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Phillips Chairman James Mulva, named CEO and president of the new company, said consumers will benefit from the $750 million in operating savings expected from the merger.
"We pass on the efficiencies, the sharing of those efficiencies, to the consumers," he said, without specifying how the savings would be achieved or how much less consumers could pay at the pump.
The stock-swap deal, which offers no premium for shareholders, comes at a precarious time for the industry as the global economic slowdown has clouded the outlook for oil companies. U.S. crude oil futures prices fell below $18 a barrel last week for first time since June 1999.
The combined company will have four U.S. Gulf Coast refineries but ConocoPhillips will likely not have to dispose of assets or make concessions to secure regulatory approval, said analyst Mathew Warburton, of UBS Warburg.
Phillips last acquired Tosco Corp. in February for $7 billion, the largest independent refiner and marketer of petroleum products in the United States at that time.
With the present Conoco merger, Phillips shareholders will own 56.6 percent of the combined company while Conoco will get 43.4 percent.
"Conoco shareholders are likely to be disgruntled given the absence of any premium for control," said analyst Mathew Warburton, of UBS Warburg, in a research note Monday.
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In a conference call with reporters, Mulva and Dunham said it was too soon to say how many job cuts would result from the merger, although they acknowledged there would be reductions in Bartlesville. But one person familiar with the deal said the number of jobs to be cut is "obviously a lot," according to the Reuters news agency.
Both Conoco and Phillips are subject to a reciprocal $550 million break-up fee should the merger fall apart due to reasons other than regulatory problems. The two companies have also lined up six investment banks to advise on the deal, which raises the question that they are concerned that a higher offer may emerge from a third party, Warburton said in the research note.
When asked specifically by CNNfn if they have been approached by a rival bidder Mulva and Dunham declined to comment. Phillips Chairman Mulva also said he saw little regulatory obstacles with the merger and that most of the $750 million in savings expected will come from operational efficiencies and not necessarily from workforce cuts.
Under the deal, Conoco (COC: Research, Estimates) shareholders will get 0.4677 share of the new firm for each Conoco share they own while Phillips shareholders get one share of the new firm for each of their shares.
The combined company will be the No. 6 integrated oil company in the world and No. 3 in the United States, with a market value of about $35 billion based on Friday's stock market close. It will own about 19,000 gas stations around the world and have 58,500 employees, 38,500 of them from Phillips, based in Bartlesville, Okla.
The board will be divided equally, with each company providing eight of the 16 directors.
Morgan Stanley, Credit Suisse First Boston and Salomon Smith Barney acted as financial advisors to Conoco while Goldman, Sachs & Co., J.P. Morgan Securities Inc. and Merrill Lynch & Co. advised Phillips. 
-- from staff and wire reports
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