Phillips Petroleum Co and Conoco Inc agreed to a US$15.4 billion merger that will create the third-biggest US oil company, allowing them to cut costs and gain size needed to compete with larger rivals.
Conoco investors will get 0.4677 share in the new company, ConocoPhillips, for each of their shares. Phillips holders will swap shares one-for-one. Phillips's market value is US$19.8 billion and the deal values Conoco at US$15.4 billion.
Oil companies are under pressure to combine because of competition from rivals bulked up by mergers, such as Exxon Mobil Corp and ChevronTexaco Corp, and the past year's 50 percent decline in oil prices. Phillips and Conoco say they will now have enough financing to pursue expensive projects in central and Southeast Asia, even if oil prices fall.
"Size matters," said Eugene Nowak, an ABN Amro analyst who rates both companies' shares "hold" and doesn't own any.
ConocoPhillips will be based in Houston, where Conoco has its headquarters. The companies expect to complete the merger in next year's second half, and say they will save about US$750 million a year by streamlining exploration and production and eliminating duplicate corporate jobs.
Phillips will cut some jobs in Bartlesville, Oklahoma, where it's based, Chairman and Chief Executive Officer James Mulva said in a press conference. Mulva, who will be ConocoPhillips's president and CEO, didn't give details. Phillips has 38,500 employees, 2,400 of them in Bartlesville, and Conoco has 20,000.
Another Houston-based oil company, USX-Marathon Group Inc may be one of the next to make a deal, Nowak said. USX Corp this year plans to split off Marathon, the current No. 3 US oil company. It has a market value of US$8 billion.
Efficient combination
Phillips and Conoco probably won't have to sell many assets to win approval from antitrust regulators, Nowak said. Chevron Corp was forced to sell Texaco Inc.'s stakes in US refining joint ventures to get its US$45.8 billion buyout approved.
"This is a combination that doesn't have too many overlaps," Nowak said.
Phillips became the second-biggest US refiner in September when it bought Tosco Corp for US$8.37 billion. The company owns refineries in Texas, Utah, California, New Jersey, Louisiana, Washington, Illinois and Pennsylvania, and runs the Circle K convenience-store chain. Conoco's refineries and gasoline stations are mostly in Rocky Mountain states.
Phillips shareholders will own 57 percent of ConocoPhillips; Conoco investors will hold 43 percent. Conoco shareholders won't get a premium, so management will have to sell the transaction by stressing the new company's opportunities for growth, Nowak said.
ConocoPhillips will have debt and preferred securities of US$18.6 billion. Conoco, the No. 4 US oil company, and No. 5 Phillips had combined sales of about US$53 billion last year, topping USX-Marathon's US$34.5 billion.
"We're doing this so we can compete with the biggest [oil] companies," Mulva said. Conoco Chairman Archie Dunham will be the new company's chairman, postponing his planned retirement until 2004, when Mulva will replace him. Each company will name eight directors to the ConocoPhillips board.
If either Conoco or Phillips backs out of the merger, it will have to pay a US$550 million breakup fee, Dunham said.
Phillips and Conoco have been discussing a merger for about six weeks, Dunham said during the press conference. A decline in their stocks, caused in part by falling oil prices, made the share swap possible, he said.
Oil prices touched a 2 1/2-year low last week before closing Friday at US$18.37 a barrel on the New York Mercantile Exchange, down 47 percent from a year earlier. Slowing economies and a drop in travel following the Sept. 11 terrorist attacks in the US have reduced demand.
Falling profits
Natural-gas prices have fallen 55 percent on the NYMEX in the past year, to US$2.64 a million British thermal units, after a surge in drilling boosted supplies.
Phillips said last month that third-quarter profit fell 12 percent to US$374 million, in part because of lower oil and gas prices. Earnings plunged 43 percent at Conoco to US$281 million.
Phillips shares rose US$0.42 to US$51.82 Friday. They've dropped 8.9 percent this year. Conoco fell 10 cents to US$24.30 and is down 16 percent for the year.
DuPont Co, the second-largest US chemical maker, sold about 30 percent of Conoco to the public in October 1998 in a US$4.4 billion offering and later distributed the rest to shareholders. ConocoPhillips will have reserves of 8.7 billion barrels of oil and natural gas, and daily production of 1.7 million barrels. It will operate in the US, Canada, the North Sea, Venezuela, China, the Timor Sea, Indonesia, Vietnam, the Middle East Russia and the Caspian.
Phillips acquired Atlantic Richfield Co's Alaskan oilfields last year for US$6.5 billion.
The new company will run or have stakes in 19 refineries with capacity of 2.6 million barrels a day in the US, UK, Ireland, Germany, the Czech Republic, and Malaysia. Phillips has 12,000 gasoline stations and convenience stores in 46 states. Conoco operates 150 US gas stations and licenses others.
Other oil companies have been able to cut costs through acquisitions.
San Francisco-based ChevronTexaco, the second-biggest in the US, may slash costs by as much as US$2 billion a year, analysts say. Chevron acquired Texaco last month.
Irving, Texas-based Exxon Mobil, the largest publicly traded oil company, expects the 1999 merger of that created it to generate savings of US$4.6 billion a year. BP Plc of the UK forecast US$5.8 billion a year in savings following takeovers of Amoco Corp, Atlantic Richfield and Burmah Castrol Plc.
Morgan Stanley, Credit Suisse First Boston and Salomon Smith Barney were financial advisers to Conoco. Phillips was advised by Goldman, Sachs & Co, JP Morgan Securities Inc and Merrill Lynch.
RISK REMAINS: An official said that with the US presidential elections so close, it is unclear if China would hold war games or keep its reaction to angry words The Ministry of National Defense said it was “on alert” as it detected a Chinese aircraft carrier group to Taiwan’s south yesterday amid concerns in Taiwan about the possibility of a new round of Chinese war games. The ministry said in a statement that a Chinese navy group led by the carrier Liaoning had entered waters near the Bashi Channel, which connects the South China Sea and the Pacific Ocean and separates Taiwan from the Philippines. It said the carrier group was expected to enter the Western Pacific. The military is keeping a close watch on developments and “exercising an
FIVE-YEAR WINDOW? A defense institute CEO said a timeline for a potential Chinese invasion was based on expected ‘tough measures’ when Xi Jinping seeks a new term Most Taiwanese are willing to defend the nation against a Chinese attack, but the majority believe Beijing is unlikely to invade within the next five years, a poll showed yesterday. The poll carried out last month was commissioned by the Institute for National Defense and Security Research, a Taipei-based think tank, and released ahead of Double Ten National Day today, when President William Lai (賴清德) is to deliver a speech. China maintains a near-daily military presence around Taiwan and has held three rounds of war games in the past two years. CIA Director William Burns last year said that Chinese President Xi Jinping
RESILIENCE: Once the system is operational, there would be no need to worry about the risks posed by disasters or other emergencies on communication systems, an official said Taiwan would have 24-hour access to low Earth orbit satellites by the end of this month through service provided by Eutelsat OneWeb as part of the nation’s effort to enhance signal resilience, a Chunghwa Telecom Co (中華電信) official said yesterday. Earlier this year the Ministry of Digital Affairs, which partnered with Chunghwa Telecom on a two-year project to boost signal resilience throughout the nation, said it reached a milestone when it made contact with OneWeb’s satellites half of the time. It expects to have the capability to maintain constant contact with the satellites and have nationwide coverage by the end
REACTION TO LAI: A former US official said William Lai took a step toward stability with his National Day speech and the question was how Beijing would respond US Secretary of State Antony Blinken yesterday warned China against taking any “provocative” action on Taiwan after Beijing’s reaction to President William Lai’s (賴清德) speech on Double Ten National Day on Thursday. Blinken, speaking in Laos after an ASEAN East Asia Summit, called the speech by Lai, in which he vowed to “resist annexation,” a “regular exercise.” “China should not use it in any fashion as a pretext for provocative actions,” Blinken told reporters. “On the contrary, we want to reinforce — and many other countries want to reinforce — the imperative of preserving the status quo, and neither party taking any
RSS