HoustonChron

Sept. 3, 2001, 8:49PM

Monster merger go-ahead looms, along with job cuts

Chevron-Texaco merger

By MICHAEL DAVIS Copyright 2001 Houston Chronicle

Federal regulators are expected to give Chevron Corp. and Texaco the green light to close their merger, possibly as soon as this week.

That will trigger a major reorganization that will mean 4,000 layoffs, some of which will be in Houston.

It is the latest in the consolidation of major oil companies that began with the merger of BP and Amoco.

This takeover, announced last October, is likely to close on schedule within about a year.

But a standoff between Shell Oil Co. and Texaco over the value of Texaco's stake in refining and marketing joint ventures has complicated the process of winning regulatory approval.

Although negotiations continue, Shell has not been willing to pay what Texaco wanted. The companies have made no secret of the fact that they are far apart in what they believe the stakes are worth.

As a result, the merger partners were forced to find a way to sidestep a quick sale and still satisfy antitrust regulators, who would object to a Chevron-Texaco merger unless they knew Texaco would ultimately sell that stake.

Now they are likely to put that stake into a trust that will handle the sale.

Both sides are mum about details, but observers say creating the trust to hold the assets will solve the biggest problem to closing the deal.

"It seems like that with this agreement, they have the regulators on board," said Dave Wheeler, oil analyst with Deutsche Banc Alex. Brown. "There's no doubt that the negotiations to sell the joint venture have been dragging on."

The deal has a current value of about $38 billion. Under the terms, Texaco shareholders will receive .77 share of Chevron common stock for each of the 551 million Texaco shares.

Chevron shares closed Friday at $90.75, up 28 cents per share. Texaco shares closed at $69.65, up 70 cents per share.

Chevron and Texaco already have significant operations in Houston, and if the merger is approved, the combined company will have about 4,000 employees here.

Layoffs are expected here, although they will not be as extensive as those that resulted from the mergers of majors Exxon and Mobil or BP and Amoco, in which thousands lost their jobs.

The companies have said they expect to identify some $1.2 billion in cost savings as soon as the deal closes.

"Both companies have overlapping operations in several places, including Houston," said Mickey Driver, Chevron spokesman in Houston.

The companies say they plan to trim 7 percent from the combined work force of 57,000, or about 4,000 workers. Applying that percentage to Houston would mean about 280 people here could lose their jobs after the deal closes.

The headquarters of the combined company, to be named ChevronTexaco, will be in San Francisco, but it will have a substantial presence in Houston.

Oil and gas exploration for North America and production in the United States and Canada will be based in Houston.

ChevronTexaco's pipeline, global trading, global aviation, energy solutions, and fuels and marine marketing companies also will be based in Houston.

The combined company also will keep Chevron Petroleum Technology Co., based in Houston, but it will be renamed ChevronTexaco Exploration and Production Technology Co.

Texaco has its global exploration, commercial development, general engineering, information technology, energy systems and global lubricants businesses based in Houston, which will remain here as part of the new company.

No one is predicting exactly when the Federal Trade Commission might hand down a ruling on the deal, but both companies say they are confident approval will be granted, especially since a workable solution to the refining stakes has apparently been offered. A shareholder meeting to vote on the deal has already been scheduled for early October.

The FTC is being extremely cautious about commenting on the matter because of the deal's magnitude and complexity.

"There is still a pending investigation before the commission," said Mitchell Katz, spokesman for the FTC in Washington.

The European Commission approved the Chevron-Texaco deal in March.

The biggest stumbling block to getting the deal done has been the protracted effort to value Texaco's interest in two refining joint ventures it has with Shell and Saudi Aramco: Motiva and Equilon.

Motiva has four refineries in the Eastern and Gulf Coast regions of the United States and supplies gasoline and other fuels to 13,000 Shell and Texaco retail and wholesale outlets. Shell owns 30 percent of Motiva, while Texaco and Saudi Aramco each own 35 percent.

Equilon has four refineries on the U.S. West Coast and supplies fuel to 9,000 Shell and Texaco outlets. Shell owns 56 percent of the company and Texaco 44 percent.

Texaco offered to sell Shell its stake but the companies have conceded that Shell does not want to pay Texaco's asking price.

"If you were Shell, what would be your hurry?" said Dave Wheeler, oil analyst with Deutsche Banc Alex. Brown. "Why would you cave at the card table?"

Then earlier this month, Chevron and Texaco said they had signed a consent order with the staff of the FTC outlining the terms they expect to meet in order to gain regulatory approval for their merger.

Texaco said it anticipates divesting its U.S. refining and marketing affiliates, certain natural gas processing and transportation facilities and some of its jet fuel marketing businesses.

The companies have proposed putting Texaco's stakes in the joint ventures into a trust in order to allow them to close the deal. An arbitrator will be appointed to appraise the value of the assets, and Shell will have first right to buy the stakes for 90 percent of the appraisal value.

If Shell refuses, the stakes will be sold to the highest bidder.

"However, we cannot assure (shareholders) that the FTC will accept the terms of the consent order agreement, or that it will not seek to impose other conditions or otherwise challenge the merger," the company said in its filing.

-- Anonymous, September 04, 2001