Chevron Corp's US$46.6 billion purchase of Texaco Inc to form the world's fourth-largest investor-owned oil company was unanimously approved by the US Federal Trade Commission.
Texaco agreed to sell six US refineries and sever ties with 14,000 retail gasoline stations that in 1998 were placed in two joint ventures with Royal Dutch/Shell Group and Saudi Arabian Oil Co. These assets will be placed in a trust if Texaco and Shell can't agree on a price Shell will pay for the Texaco stakes before the merger takes place next month.
The sale of Texaco's US refining and marketing operations will preserve "the competitive balance that existed in the pre-merger environment," said Sean Royall, deputy director of the FTC's antitrust enforcement staff. Without the divestitures, the loss of competition would have led to higher gasoline prices in the West and South, the FTC said.
Since 1999, the FTC has permitted three other major oil mergers while requiring divestitures to preserve regional or market competition. The agency followed that policy in sanctioning the combination of Chevron and Texaco, the No. 2 and No. 3 US oil companies, Royall said.
As early as next week, the FTC may approve Phillips Petroleum Co's US$8.4 billion purchase of Tosco Corp. to form the fifth-largest US gasoline retailer, people familiar with the matter said. Phillips agreed to supply mineral spirits, a chemical solvent, to Shell for 25 years to address a concern that the Phillips-Tosco combination would dominate sale of the product, the people said.
Neither Phillips nor the FTC would comment.
Texaco shares, which have gained 21 percent since the buyout was announced last October, rose US$0.58 to US$70.68. Chevron shares, which have climbed 14 percent since last October, rose US$0.65 to $92.40. Tosco shares dropped US$0.49 to US$46.96 while Phillips shares fell US$0.23 to US$59.17.
FTC approval "marks a critically important milestone as we move to establish a premier energy company," Chevron Chairman and Chief Executive David O'Reilly said in a statement distributed by the PRNewswire. O'Reilly will head the combined business, which will be called ChevronTexaco Corp.
The trustee will have eight months to sell the joint-venture assets for the best price, though Shell and Texaco could still reach agreement before shareholders of both companies meet Oct. 9 to approve the transaction. The trustee will not be required to get a minimum price for Texaco's 44 percent shares of Equilon Enterprises LLC or its 31 percent stake in Motiva Enterprises LLC.
Equilon, formed with Shell, serves the US Midwest and West.
The three-way Motiva partnership between Texaco, Shell and Saudi Arabian Oil Co operates in the East and South.
Under terms of the joint ventures, Shell may buy the assets at a 10 percent discount from their appraised value before the merger is completed. Shell spokeswoman Kate Hill said the company was "still in discussions" with Texaco.
If Shell and Texaco can't strike a deal, "other buyers will be invited in to bid on it," said Robert Falise, a New York lawyer appointed as divestiture trustee. "In due course, it may turn out to be a competitive bid."
The FTC settlement gives Equilon exclusive control of the Texaco brand through June 2002 and Motiva through June 2003. There will be a three-year transition period after that to give Texaco dealers and wholesalers time to switch brands.
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