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Valero, Premcor in $6.9B merger
Cash-and-stock deal would create largest crude oil refiner in North America.
April 25, 2005: 5:26 AM EDT

SAN ANTONIO (Dow Jones) - Valero Energy Corp. (VLO) confirmed that it agreed to acquire refiner Premcor Inc. (PCO) for about $6.9 billion in cash and stock.

In a press release Monday, Valero said it values the transaction at about $8 billion, including the assumption of about $1.8 billion of Premcor debt offset by about $800 million in cash.

The deal was reported by The Wall Street Journal earlier Monday.

Shareholders of Premcor, based in Old Greenwich, Conn., will have a choice of 0.99 of a Valero share or $72.76 in cash for each Premcor share.

Based on Friday's Premcor closing price of $59, the cash price of $72.76 would provide a premium of 23%.

Valero will issue about 46.7 million shares in the deal, valued at about $3.5 billion based on Friday's Valero closing price of $75.04 . The cash portion will total about $3.4 billion .

Valero expects to complete the merger on Dec. 31 .

Valero said 2005 "is shaping up to be another year of record earnings" and said "we believe that our trend of record-setting quarterly results will continue into 2006 and beyond," reiterating statements from last week.

The company predicts the acquisition of Premcor will add about 14% to earnings per share in the first year after closing.

In 2004, Valero's earnings excluding a charge for a joint venture were $1.84 billion, or $6.66 a share.

Analysts polled by Thomson First Call, on average, predict earnings of $7.40 a share for 2005 and $6.95 for 2006.

Valero said it will finance the cash part of the acquisition with a combination of cash on hand and bank debt. At March 31, the company had $686 million cash.

By year-end, Valero expects the combined company to have $2 billion of available cash and it anticipates issuing about $1.4 billion in new debt.

After buying Premcor, Valero will be the largest refiner of crude oil in North America, surpassing Exxon Mobil Corp. (XOM). Valero acquired Ultramar Diamond Shamrock Corp. for about $4 billion in cash and stock in 2001, becoming the largest independent refiner in the U.S.

Valero's 15 refineries have a combined throughput capacity of about 2.5 million barrels of oil per day, about 12% of the total refining capacity in the U.S.

Premcor's four refineries have a capacity of about 790,000 barrels a day.

Valero predicts the merger will lead to $350 million in annual cost-savings in the second year after closing, including lower administrative and interest costs, lower crude oil costs due to purchasing leverage and operational improvements.

The Wall Street Journal reported that Premcor's chairman, Thomas D. O'Malley, plans to step down when the deal closes, as does Jefferson F. Allen, its chief executive, and the report said Premcor would have no seats on the Valero board.

Valero noted that "there will be no changes to Valero's senior management or board of directors." In the press release, O'Malley said "I intend to remain a long-term and large shareholder of the new Valero."

Valero scheduled an analyst meeting and Webcast for 11:30 a.m. EDT Monday.

-Josh Beckerman; Dow Jones Newswires; 201-938-5400; Dow Jones Newswires 04-25-05 0504ET Copyright (C) 2005 Dow Jones & Company, Inc. All Rights Reserved.  Top of page


Valero LP
Premcor Incorporated
Mergers - Acquisitions - Takeovers
Oil and Gas
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