Royal Dutch, Chevron Linked by Web Rumor
A rumor floated on an obscure Web site devoted to Dutch stocks--that huge Royal Dutch/Shell Group and Chevron Corp. on Monday would announce a $65-billion merger--pushed Chevron’s stock nearly 5% higher Wednesday.
Spokesmen for San Francisco-based Chevron and Royal Dutch/Shell, based in The Hague and in London, said separately that corporate policy forbids commenting on rumors.
However, Chevron Chairman and Chief Executive Kenneth T. Derr, in an interview with The Times last month, said Chevron was willing to look at mergers or joint ventures “as long as they make sense for the shareholders.” But Derr discounted the need for moderately sized oil companies to seek merger partners.
“I don’t happen to subscribe to the theory that, per se, bigger is better. Bigger can be better if you do it right,” Derr said.
“But, you know, we’re not the biggest company in the industry today, but we’ve had the highest shareholder return for the last nine or 10 years. So I would submit that although we’re half the size of Exxon or Shell, we’ve done pretty well.”
Given the shopping-spree mentality that has developed in the oil industry thanks to low oil prices, analysts were loath to dismiss the idea of a marriage between Royal Dutch/Shell, the world’s largest publicly traded oil company, and Chevron, the third-largest oil company in the U.S. However, they noted that major hurdles would await such a matchup, including antitrust problems, because such a combination would control about 40% of the West Coast retail gasoline market.
“After Exxon and Mobil anything is possible,” said one investment banker, referring to the proposed $75-billion merger of Exxon Corp. and Mobil Corp., No. 1 and No. 2 among U.S. oil companies, which was unveiled last week. That deal and the proposed $49-billion merger of British Petroleum and Chicago-based Amoco Corp. would leave the oil industry with three “super major” companies: Exxon Mobil, Royal Dutch/Shell and BP Amoco.
“It’s like a toga party and all of these guys want to get in on it before it’s too late,” said Fadel Gheit, senior energy analyst with Fahnestock & Co. in New York.
Chevron’s stock rose $3.75 to close at $86.19 on the New York Stock Exchange, following a 25-cent increase Tuesday, when the rumor first began circulating at Chevron headquarters. Royal Dutch’s U.S.-traded shares rose $2.19 to $47.31 on the NYSE.
The source of the latest merger speculation is an obscure site on the World Wide Web devoted to following the stocks of Dutch companies; it was first reported in Wednesday’s San Francisco Chronicle. The site, https://www.dutchstocks.com, passed along “unconfirmed rumors” that top executives of Royal Dutch/Shell would reveal merger plans with Chevron at a previously scheduled meeting Monday with stock analysts in London and New York. Chevron’s Derr is scheduled to meet with analysts in New York on Tuesday.
A major announcement on Royal Dutch/Shell restructuring had been expected at the meeting as a way of boosting the company’s flagging fortunes. The behemoth, which employs more than 101,000 people in more than 45 countries, has seen income drop nearly 40% this year and is “like a big cruise ship that can’t make a turn,” said James Van Alen, an oil analyst with Janney Montgomery Scott Inc.
Chevron, which employs 34,000 worldwide and more than 8,000 in the San Francisco Bay area, has also seen income slump because of crude oil prices that are hovering at 12-year lows, but it is viewed as an agile, low-cost operator with strong management, Gheit said.
The biggest obstacle to the pairing would be antitrust objections from the Federal Trade Commission, analysts said. For example, Chevron controls about 20% of the retail gasoline market on the West Coast, and Shell, through a joint venture with Texaco Inc., controls another 18%, Van Alen said.
A merger would be further complicated by the holding company structure of Royal Dutch/Shell, which is 60% owned by Royal Dutch Petroleum of the Netherlands and 40% owned by Shell Transport & Trading of London. If the merger were structured as a stock transaction, as most such giant deals are, Chevron shareholders would have to receive stock from both companies, which some investors might find undesirable, analysts said.
And then there’s the question of whether Royal Dutch/Shell, a giant with nearly $172 billion in 1997 revenue, needs Chevron.
“Really, Royal Dutch/Shell doesn’t need any partners,” Gheit said. “They can dance solo forever.”
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PIPELINE STUDY
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(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
A Look at Chevron
* Headquarters: San Francisco
* Employees: 34,000
* Chief executive: Kenneth T. Derr
* 1997 revenue: $42 billion
* 1997 earnings: $3.3 billion
* Worldwide liquid reserves: 4.5 billion barrels
Then ...
* Chevron traces its roots to the 1879 founding of Pacific Coast Oil in San Francisco, which was acquired in 1900 by John D. Rockefeller’s Standard Oil.
* After the monopoly was broken into 34 pieces in 1911, Standard Oil (California) emerged as a separate entity.
* After it acquired Gulf in 1984, doubling the size of its oil and gas activities, the corporation changed its name to Chevron.
* Chevron explores for and produces crude oil and natural gas in the United States and 22 other countries. In 1997, it produced 1.5 million barrels per day of oil and gas.
* The company is one of the nation’s largest oil refiners and turns oil into a variety of products, including gasoline, diesel and airline fuel, asphalt, lubricants and chemicals. It operates six refineries in the United States, including one in El Segundo, and one in Canada.
* Chevron sells more gasoline in California than any other company, holding 20% of the market. Its gasoline stations number more than 7,800 in the United States and 200 in Canada. Its Caltex affiliate supplies more than 7,900 service stations internationally.
* Chevron employs one of the highest-ranking women in the oil industry: Patricia Woertz was recently appointed president of Chevron Products.
