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ChevronTexaco buying Unocal
Nation's No. 2 oil company announces $16.4B stock and cash deal for No. 9.
April 4, 2005: 10:30 AM EDT

NEW YORK (CNN/Money) - ChevronTexaco, the nation's No. 2 oil company, agreed Monday to buy No. 9 Unocal in a stock and cash deal valued at $16.4 billion.

ChevronTexaco (down $1.66 to $57.65, Research), which lags only ExxonMobil among the nation's petroleum leaders, will pay either 1.03 shares of its stock or $65 in cash for each Unocal (down $4.64 to $59.71, Research) share, although both amounts could be prorated. It said that 75 percent of the purchase price will be paid in stock, the rest in cash.

The value of the deal is closer to $62 a share, according to the company's statement.

Based on Friday's close, the ChevronTexaco stock included in the offer is worth $61.09, which is below Unocal's close of $64.35. Even the cash offer of $65 only represents a premium of about 1 percent.

In early trading Monday, Unocal shares were off about 7 percent, while shares of Chevron lost about 3 percent.

During a conference call with investors and analysts Monday, one investor questioned Unocal Chairman and CEO Chuck Williamson about the lack of a premium.

"I would only say I think this is a fair valuation for the company," said Williamson in response.

Unocal Chief Financial Officer Terry Dallas said that one reason for lack of a premium is that leaks about the possible deal had driven up Unocal shares in advance of the deal.

Backdrop: Oil hits record

The acquisition announcement comes the same day that oil futures reach record levels by topping $58 a barrel for the first time on traders' belief that continued strong demand could outstrip worldwide production already near maximum levels.

ChevronTexaco's statement said it anticipates issuing 210 million shares of its stock as part of the deal, and paying about $4.4 billion in cash. It also anticipates assuming $1.6 billion in debt, bringing the value of the deal, including debt, to $18 billion.

ChevronTexaco was formed by a 2001 acquisition of Texaco by Chevron, a deal worth $35 billion in stock and about $8 billion in assumed debt at that time.

In order to close the Unocal deal, ChevronTexaco said it expects to sell assets that would bring in more than $2 billion. It also sees pre-tax annual cost savings of $325 million.

Unocal has been considered on the market for some time. It had been rumored that China National Offshore Oil was a leading contender for Unocal due to that nations' growing demand for oil.

But the Wall Street Journal reported Monday that China National's bid collapsed over the weekend, leaving ChevronTexaco and Italian oil company Eni SpA (Research) as the two final bidders for Unocal.

ChevronTexaco said the deal will help it replenish its reserves. It said Unocal's reserves would increase its proven reserve base of oil by about 15 percent, while natural gas reserves would increase by about 5 percent.

To see more about rising oil prices and their effect on you, click here.  Top of page


ChevronTexaco Corporation
Unocal Corporation
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