Heavy Trading in Chevron Shares Fuels Takeover Talk


Unusually heavy trading in Chevron Corp. stock is feeding Wall Street rumors that California's largest company may be the target of a takeover attack by Pennzoil Corp. or another oil firm.

According to the speculation, the heavy trading volume is a sign that Pennzoil or another firm is accumulating stock with an eye to launching a hostile bid or trying to force the asset-rich company to pay a huge dividend to shareholders.

Few believe that Pennzoil alone could finance a takeover that could cost a staggering $35 billion, particularly at a time when arranging high-yield junk bond financing is increasingly difficult. But some say the Houston company might be able to ally itself with others and secure the loans on expectations that the buyers could sell choice pieces of Chevron immediately after the sale.

Chevron, which has been unusually active for more than two weeks, closed Monday at $67.25, up 87 1/2 cents from Friday, on trading of 2.1 million shares. Trading also passed the 2-million share mark Friday and Thursday. By comparison, trading volume averaged 570,000 shares a day in September.

Under the rules of the Securities and Exchange Commission, any investor with a 5% stake in the company must disclose the size of his holdings. Wall Street sources speculate that the buyers may now hold just under 5%, or may have just crossed the 5% threshold. Once an investor has crossed that line he has 10 days to disclose the size of his stake.

Some on Wall Street have also speculated that Pennzoil has asked an independent trading firm to acquire the shares for it, in an effort to disguise the source of the buying.

A Chevron spokesman declined comment on the takeover rumors, citing a company policy against discussion of such matters. Pennzoil officials could not be reached late Monday, but they have also recently declined comment on the rumors.

Pennzoil still has about $2.5 billion in spending money that it received in a 1988 settlement with Texaco Inc. following a lengthy battle over Getty Oil Co.

"Two weeks ago I would have said this talk about such a huge deal was crazy," said Rosario S. Ilacqua, analyst with Nikko Securities International in New York. "But now, after all this activity in the stock, it seems like somebody out there is accumulating."

By his assessment, the company might be worth $100 to $125 a share in a selloff of its assets, even while the stock is trading at $67 a share.

With annual revenue of $28 billion, Chevron is the biggest marketer of gasoline in the United States, Ilacqua noted. Operations are mostly concentrated on the West Coast and in the Southeast. The company has vast oil and gas reserves, located mostly around the Gulf Coast, in California and the Rockies.

Chevron is 50-50 owner with Texaco of Caltex, which has enormous oil operations in Southeast Asia, Ilacqua said.

While Chevron's management is generally well regarded on Wall Street, some analysts have argued that the company needs to squeeze more value from its assets, in part by increasing the efficiency of its retailing and refinery operations.

Some on Wall Street speculate that Chevron might be able to find an eager buyer for its West Coast operations in British Petroleum, which has sought a market for its Alaskan crude.

However, Bryan Jacoboski, an analyst with Paine Webber Inc., said he was still skeptical that the activity in the stock proves that a would-be acquirer is lurking. The possibility that the shares are simply being acquired for longer-term investment "can't be discounted," Jacoboski said.

He said he doubted that BP would buy Chevron's West Coast operations because Chevron's refineries are not well suited to process BP's Alaskan crude.

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