"It is in the interests of consumers to have low-cost producers," one executive said.
But analyst Flynn worried that the merger could get snagged in the continuing government gasoline price investigations, and the Brattle Group's Verleger said the FTC could use this proposed combination to examine why previous mergers have, as yet, failed to produce the expected increase in investment in exploration and production.
The marriage of Chevron of San Francisco and Texaco of White Plains, N.Y., almost came off a year ago but dissolved in June 1999 because of questions of price and who would run the resulting company. Since then rumors of a renewed courtship resurfaced repeatedly, bursting out again Friday.
Looking to Trim $1.2 Billion in Costs
Under the terms of the proposed transaction, Chevron would swap 0.77 of a Chevron share for each of Texaco's 551.25 million shares outstanding, or $64.88 apiece based on Friday's closing prices on the New York Stock Exchange. In all, the transaction is valued at about $36 billion plus the assumption of about $7 billion in Texaco debt.
The merger offer represents an 18% premium over Texaco's $55.13-per-share closing price Friday on the NYSE; Chevron closed Friday at $84.25.
The combined company, should it pass muster with regulators, aims to cut $1.2 billion in annual costs and expects to have reached that goal within six to nine months after the deal closes, the executives said. About $700 million of that would come from exploration and production operations.
Caltex, a 64-year-old Chevron-Texaco joint venture for refining and marketing in Asia and Africa, would yield significant savings on its own because it could be operated more efficiently by one company than by two, the executives said.
Work Force Would Slim by About 7%
About 4,000 jobs would be eliminated in the merger, accounting for about 7% of the combined 57,000 employees of Chevron, Texaco and Caltex, the executives said. They declined to specify where the layoffs would fall.
The merged company would be based in San Francisco. Chevron Chairman and Chief Executive David J. O'Reilly would hold those jobs with the merged company. Texaco Chairman and Chief Executive Peter I. Bijur would become vice chairman in charge of refining and marketing operations, chemicals and power.
In an interview in June, O'Reilly noted that the failure to reach a merger agreement with Texaco last year was a lost opportunity.
"We could get bigger through merger and bigger through internal growth," he told The Times. "But on the one count, it takes two to tango. We made an attempt and it didn't work out."
However, he added: "It's important for us to be big in scale wherever we go."
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Times staff writer James Flanigan contributed to this story.
