Shell Group to Purchase Pennzoil for $1.8 Billion

Royal Dutch/Shell Group will pay $1.8 billion to buy Pennzoil-Quaker State Co., the nation’s largest motor oil maker and parent company of more than 2,000 Jiffy Lube oil change service stations across the country.

Although the Pennzoil and Quaker State brand names will survive the deal, a spokeswoman for Royal Dutch’s Shell division said the acquisition could mean job losses of about 15%--or about 1,230 people--as the firms combine their operations.

Pennzoil-Quaker State, based in Houston, has about 7,400 workers worldwide. It will be merged with Shell’s lubricants unit, which employs about 800 people.

Pennzoil-Quaker’s headquarters will be combined with the Shell division, which is based in Houston.

Analysts said the deal is the latest in a wave of mergers and acquisitions in the energy industry that started last year.

“Sounds like one more step in the consolidation business,” said Bill Gilmer, a Houston economist with the Federal Reserve Bank of Dallas.

Two weeks ago, shareholders of Conoco Inc. and Phillips Petroleum Co. overwhelmingly approved a proposed $15.6-billion merger, moving the companies one step closer to creating the nation’s third-largest oil corporation. The new company will be based in Houston.

Royal Dutch, which announced the purchase after the stock markets closed Monday, said it will pay $22 for each share of Pennzoil-Quaker State and assume $1.1 billion of its debt.

The deal has been approved by Pennzoil-Quaker’s board and is expected to be completed during the second half of 2002 but is subject to regulatory and shareholder approval, both companies said.

The per-share price represents a 42% premium over the $15.49 close of Pennzoil-Quaker shares Monday on the New York Stock Exchange. Shares of Royal Dutch closed down $1 at $52.80, also on the NYSE.

Rob Routs, president and chief executive of Royal Dutch’s Shell Oil said the deal will generate annual cost savings of about $140 million by 2004.

Pennzoil-Quaker State CEO Jim Postl called the deal an effective way to leverage his company’s name recognition with a larger operation.

“Pennzoil-Quaker State will benefit significantly from being part of an enterprise with the geographic scope, operational scale, breadth of products and services, and financial resources necessary to compete in a consolidating industry,” he said.

Royal Dutch/Shell Group managing director Paul Skinner, who also is chief executive of the company’s oil products business, said the deal will make Shell a leader in the U.S. and global lubricants market.

“I think Shell recognizes the incredible value of the No. 1 and No. 2 brands,” Pennzoil-Quaker State spokesman Ray Scippa said. “Clearly we think it’s a great opportunity for both companies.”

Shell Oil produces and markets oil, natural gas and chemicals. It has reserves of 1.2 billion barrels of oil and 1.9 trillion cubic feet of natural gas.

It owns Shell Oil Products U.S., which was formerly Equilon, and operates a refining and marketing venture called Motiva with Exxon Mobil and Saudi Aramco.

Royal Dutch/Shell Group is the third-largest petroleum company in the world.

Exxon Mobil and BP are the largest and second-largest, respectively.