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Chevron Deal to Buy Texaco Reported Near


SAN FRANCISCO — Chevron Corp., the second-largest U.S. oil company, is close to buying No. 3 Texaco Inc. for about $36 billion in stock, people familiar with the negotiations said late Friday.

Chevron may pay 0.77 share for each Texaco share, or $64.87, 18% more than Friday's closing price, the sources said. Earlier Friday, the online editions of the Financial Times and the Wall Street Journal reported on talks between the companies.

The companies held negotiations that collapsed in June 1999 when Texaco turned down an offer of $70 a share as too low, people familiar with the talks said then. A change in Chevron's leadership and Texaco Chief Executive Peter Bijur's inability to boost his share price eased the way for new negotiations, analysts said.

"Derr and Bijur just did not see eye to eye," said Fadel Gheit, an analyst at Fahnestock & Co., referring to Kenneth Derr, the then-Chevron chairman and chief executive who retired in January. "The difference now is that Peter Bijur can see his stock is dead in the water."

San Francisco-based Chevron won't discuss speculation about business matters that may or may not be under consideration, said Nancy Malinowski, a company spokeswoman.

Texaco, based in White Plains, N.Y., won't comment on rumors and speculation, said spokesman Chris Gidez.

Although oil and natural gas prices are near record highs, Texaco's shares have fallen 12% since April 30, 1999, before news of the first talks was reported. Chevron shares have fallen 16%.

"Bijur's shareholders are unhappy," Gheit said. "Chevron's are too."

Investors want Chevron and Texaco to raise earnings by cutting costs the way BP, the former British Petroleum, did after buying Atlantic Richfield Co., and the way Exxon Mobil did after merging two former American oil giants, Gheit said.

The former Exxon Corp. said it saved $4.6 billion a year, in part by cutting 19,000 jobs, after it merged with Mobil Corp. in December 1999. BP said it saved $1 billion in second-quarter costs after the Arco buyout in April. A merged Texaco and Chevron could save $600 million to $1.2 billion, Gheit estimated.

Current Chevron Chairman David O'Reilly must overcome tough antitrust obstacles if a buyout is to succeed. Consumers were angered when gasoline prices surged above $2 a gallon in parts of the U.S. this year, and the two leading presidential candidates have made higher energy prices a campaign issue.

Vice President Al Gore, the Democratic nominee, has backed investigations of Big Oil's role in the price hikes.

Texaco is in a U.S. refining alliance with the Royal Dutch/Shell Group, the second-largest publicly traded oil company and Saudi Arabia's state-owned refining company.

The alliance, created by two complex joint ventures called Equilon Enterprises and Motiva Enterprises, is the largest seller of fuel in the U.S., operating 23,000 gas stations. That alliance would almost certainly have to be dissolved or modified before a Chevron-Texaco merger, analysts have said.

Chevron shares fell $3.06 to $84.25, closing before news of the talks leaked, and Texaco declined $1.88 to $55.13, both on the New York Stock Exchange.

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