Chevron and Texaco Reportedly in Talks for Possible Merger
Chevron Corp. and Texaco Inc. reportedly are in talks that might lead to another mega-merger in the oil industry, where several of the market’s giants already have joined forces to survive exceptionally weak oil prices.
The talks are in the early stages and any agreement might not be reached for months, if at all, one person familiar with the negotiations told Bloomberg News on Friday. The companies either refused to comment or dismissed the reports as mere speculation.
Even so, the reports sent Texaco’s stock soaring on Wall Street. Texaco gained $5.06 a share to close at $67.25 in New York Stock Exchange composite trading. But Chevron, a component of the Dow Jones industrial average, fell $2.94 a share to close at $94.88.
Shares of another oft-rumored merger candidate, El Segundo-based Unocal Corp., also rose, gaining $2.25 a share to close at $44.38 on the Big Board amid speculation that Unocal also might somehow fit into the plans of either Texaco or Chevron.
Chevron, based in San Francisco, and Texaco, based in White Plains, N.Y., have long been rumored to be potential merger partners, and both have said they’d consider a merger if the price and fit were right.
But each is on record stating that, if necessary, each can survive and even prosper as an independent company, as oil prices begin to rebound from historic lows. Crude oil for current delivery, which dropped below $11 a barrel in December, closed Friday at $18.22 on the New York Mercantile Exchange.
Yet all around them in recent months, their biggest rivals have been announcing mega-mergers of once-unthinkable size. U.S. industry leader Exxon Corp. has agreed to buy Mobil Corp. for stock now valued at $87 billion, and British Petroleum Co. of London acquired Amoco Corp. for $48 billion to create BP Amoco.
Atlantic Richfield Co., another California fixture that had long asserted that it preferred to stay independent, agreed last month to be purchased by BP Amoco for about $27 billion.
Those deals have put even more pressure on the remaining independents to consider mergers, and virtually every major oil company has held at least exploratory merger talks with the others, investment bankers have said.
And a linkup between Chevron and Texaco--which undoubtedly would lead to major job cuts--could save $1.5 billion a year in operating costs, said Fadel Gheit, an oil analyst at the investment firm Fahnestock & Co. in New York.
“If these two come together, they will give the three other super-majors a run for their money,” Gheit said, referring to Royal/Dutch Shell Group, Exxon-Mobil and BP Amoco.
Chevron and Texaco already have long-established ties. They’re joint owners of Caltex, a 63-year-old refining and marketing concern that operates mainly in Asia, Africa and the Middle East.
The two companies also are close in size: Texaco’s revenue last year was $31.7 billion and Chevron’s was $30.6 billion. But Wall Street applies a much higher value to Chevron, whose total market value is nearly $62 billion, versus $36 billion for Texaco.
Although its gasoline is a familiar sight in Southern California, Chevron has spent much of its exploration and production efforts overseas in places such as Kazakhstan and Angola.
The company, under the direction of Chief Executive Kenneth Derr, gets high marks from analysts for continuing to boost its drilling budget in the face of low oil prices, and he has the company working on deals in West Africa, Kuwait and Venezuela.
But Chevron effectively halted production off the California coast this week. The company said it canceled the sale of its stake in the Point Arguello offshore oil field and would shut down production there. Texaco also is a partner of Chevron’s at that field.
