- The Washington Times - Monday, April 4, 2005

SAN RAMON, Calif. (AP) — ChevronTexaco Corp., the nation’s second-largest oil company, is buying smaller rival Unocal Corp. for $16.4 billion, hoping to further elevate its already surging profits by boosting its oil and natural gas supplies in Asia.

The deal announced yesterday proposes to unite San Ramon-based ChevronTexaco, which trails only Exxon Mobil Corp. in the U.S. oil business, with El Segundo-based Unocal, the nation’s ninth-biggest oil and gas production company.

ChevronTexaco initially valued its acquisition price, consisting of stock and cash, at $62 per share, nearly 4 percent below Unocal’s closing price last week.

The offer disappointed investors, who had driven up Unocal’s market value by 20 percent since the press reported ChevronTexaco’s was discussing a possible takeover a month ago. Unocal’s shares slipped $4.75, or 7.4 percent, to close at $59.60 in trading on the New York Stock Exchange, while ChevronTexaco’s shares fell $2.33, or 3.9 percent, to close at $56.98.

As part of the deal, ChevronTexaco will assume $1.6 billion of Unocal’s debt and sell about $2 billion in assets.

ChevronTexaco Chairman David O’Reilly told reporters yesterday that he expects the proposed takeover to receive the required regulatory approvals so it can be completed before year’s end.

Based on the two companies’ most recent results, ChevronTexaco would have annual sales of about $163 billion after the acquisition is completed. That means the combined company still would be far smaller than Irving, Texas-based Exxon Mobil, which rang up nearly $300 billion in revenue last year.

Unocal has been considered an attractive takeover target for years, largely because of its valuable cache of natural gas in Asia and oil in the Gulf of Mexico. The company reportedly drew interest from the China National Offshore Oil Corp., a large state-owned company, and Italian oil company Eni SpA before settling on a sale to ChevronTexaco.

ChevronTexaco prizes Unocal for its natural gas supplies in Asia, Mr. O’Reilly said. That rapidly growing part of the world could shape up as a potential gold mine for ChevronTexaco because China and India are consuming more energy to fuel their bustling economies, a phenomenon likely to drive up prices for years to come.

Unocal’s oil supplies in the Gulf of Mexico also figure to give ChevronTexaco even more clout in the North American oil and gasoline markets.

Mr. O’Reilly predicted Unocal would “fit like a glove” with ChevronTexaco. “This squarely fits with our key objectives,” Mr. O’Reilly told reporters in a conference call yesterday.

Like other major oil companies, ChevronTexaco already has been flourishing, largely because of a rapid run-up in oil prices that has pushed U.S. gasoline prices well over $2 per gallon while squeezing consumers and businesses alike.

ChevronTexaco earned $13.3 billion last year, the most profitable one since its inception in 1879. Unocal earned $1.21 billion last year, nearly doubling its profit from the previous year.

Mr. O’Reilly is betting ChevronTexaco can make even more money by drawing on Unocal’s energy supplies and cutting costs from the overlapping operations of the two companies.

ChevronTexaco expects the deal to boost profits by at least $325 million annually, with about two-thirds of that targeted amount, or roughly $215 million, coming from lower expenses.

Mr. O’Reilly said the cost-cutting efforts will include layoffs, but declined to project how many people will lose their jobs. He indicated the layoffs will be concentrated in the United States.

ChevronTexaco employs 47,000 workers, while Unocal has about 6,000 employees.

The bid to buy Unocal marks the second major acquisition negotiated by Mr. O’Reilly since he became ChevronTexaco’s chief executive officer in 2000. The company bought Texaco Inc. for $39 billion about 3 years ago, a deal that resulted in thousands of layoffs.

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