Valero announced Monday that it would purchase Kaneb Services and Kaneb Pipe Line Partners in a $2.8-billion deal that would create one of the nation's largest petroleum pipeline and oil terminal operators.
Valero, based in San Antonio, would control nearly 10,000 miles of oil and refined-products pipelines after the Kaneb deal, which is expected to close in the first quarter of 2005.
It also would own 101 terminal facilities located in 30 states and abroad and four crude-oil storage facilities with a capacity of 85 million barrels, the company said.
"The combined entity will be in a much better strategic position with stronger, more-diversified operations, increased earnings stability and a terrific platform for future growth," said Curt Anastasio, Valero chief executive.
Valero on Monday also reported third-quarter earnings down slightly from last year, but the company's stock closed up $1.01 at $57.21 on the New York Stock Exchange.
Monday's deal is subject to the approval of the unit holders of Valero and Kaneb Partners and the shareholders of Kaneb Services, as well as federal regulators.
Terms call for Valero to acquire all shares of Kaneb Services for $525 million, or $43.31 a share. On Monday, shares of Kaneb Services closed at $42.60, up 36%.
"We have created significant value over the years in the Kaneb companies and we believe this transaction provides an outstanding opportunity to our investors," said John Barnes, Kaneb Services' chief executive.
Kaneb Pipe Line Partners shareholders will receive Valero stock valued at $61.50 a share, subject to a trading range of Valero's stock price upon completion of the deal.
Valero owns and operates pipelines, terminals and storage facilities primarily in California, Texas, New Mexico and Colorado. It transports crude oil, natural gas and refined products for Valero Energy Corp., which owns 46% of the company.