The Chevron Corp. agreed yesterday to acquire Texaco Inc. for about $36 billion, creating the world's fourth-largest oil concern.
The companies' boards approved the deal, which is expected to be announced today, executives close to the transaction said. It comes during a period of high oil and gas prices and much political jostling in the United States and abroad to keep those prices in check. The acquisition will likely come under intense scrutiny by regulators, who could force the combined company to divest certain assets, especially in states like California where the company would dominate the retail gas station business.
At the same time, oil companies such as Chevron and Texaco face enormous pressure to merge to remain competitive with the new breed of oil giants, Exxon Mobil, BP Amoco and Royal Dutch/Shell Group, the three largest oil companies in the world. While the combined company would operate nearly 50,000 gas stations worldwide, it would still be less than half the size of Exxon Mobil based on annual revenue.
The proposed giant, to be called Chevron Texaco, would bring together two of the nation's most storied companies, combining the former Standard Oil Co. of California, now known as Chevron, with Texaco, which was founded in 1902 by "Buckskin Joe" Cullinan and whose advertising tagline, "You can trust your car to the man who wears the star," became part of the country's consciousness in the 1940s.
The boards of both Chevron, based in San Francisco, and Texaco, based in White Plains, N.Y., met yesterday afternoon and approved the deal after negotiations that began in the spring, according to senior executives involved in the talks.
According to the executives, Chevron will swap 0.77 of a share - the equivalent of $64.87 based on Friday's closing price - for every share of Texaco. That represents a premium of about 18 percent over the $55.13 that Texaco's stock closed at on Friday. Chevron will also assume about $7 billion of Texaco's debt.
The new company will be based in San Francisco, the executives said. It is unclear how deep job cuts will be at Texaco's headquarters, but the combined company plans to eliminate 4,000 positions, mostly from overlapping management and back-office operations, to save $1.2 billion a year, the executives said. Before job cuts, the combined company would employ 57,000 people.
This is not the first time Chevron has tried to buy Texaco. In June 1999, Texaco's board rejected a $37.5 billion offer from Chevron after the two companies clashed over the price and management structure of the proposed deal. Kenneth T. Derr, then the chairman of Chevron, demanded that he head the new company, leading to friction, according to executives close to the deal then. Derr retired this year and was succeeded by David J. O'Reilly.
Under the structure of the deal reached yesterday, O'Reilly, 53, will become chairman and chief executive of the combined company while Texaco's chief executive, Peter I. Bijur, 57, will become vice chairman. Chevron's vice chairman, Richard H. Matzke, 63, will remain vice chairman as well.