ChevronTexaco to Buy Unocal for $16.4B

ChevronTexaco Corp. (CVX) on Monday said it agreed to acquire Unocal Corp. (UCL) for about $16.4 billion, bulking up its oil and natural gas reserves in the Asia Pacific region at a time when energy prices hit record levels.

ChevronTexaco, a distant No. 2 behind Exxon Mobil Corp. (XOM) in U.S. oil production, beat out Italian oil group Eni, China National Offshore Oil Corp. (CEO) and other potential suitors to acquire the No. 9 U.S. oil and gas producer.

The deal gives ChevronTexaco a valuable portfolio of discovered and underdeveloped deepwater oil and natural gas assets overseas, specifically in the Asia Pacific region, and comes on a day when crude rose above $58 a barrel.

"Unocal should make a good fit with ChevronTexaco," said James Halloran, analyst with National City Private Client Group, in Cleveland, which manages $33 billion in assets. "It gives them a much stronger presence in exploration and production, especially in the Far East."

El Segundo, Calif.-based Unocal operates or participates in exploration and production projects in Thailand, Indonesia, Myanmar, Bangladesh, the Netherlands, Azerbaijan, Congo and Brazil as well as the Gulf of Mexico.

"If you look at where all the assets are they are pretty close to hot markets," said Subash Chandra, an analyst at Morgan Keegan, noting specifically Asia and North America.

"It's just a substantial oil company that is up for sale and that is rare in this business."

Terms of the deal, structured as 75 percent stock and 25 percent cash, provide an overall value about $62 per share based on the closing price of ChevronTexaco stock on April 1. Unocal shareholders may elect to receive either 1.03 shares of ChevronTexaco stock or $65 in cash for each share of Unocal stock.

ChevronTexaco will also assume about $1.6 billion in debt.

Shares of Unocal, which surged nearly 60 percent since December on expectations of a takeover, fell nearly 5 percent Monday from a close Friday of $64.34, based on a lack of premium in the deal.

"The stock has a 15 percent to 20 percent premium in it because it's been rumored to be for sale," Halloran added. "Basically, ChevronTexaco paid the premium that the market anticipated."

ChevronTexaco expects oil-equivalent production from the combined portfolios during 2006 to average about 3 million barrels per day. Unocal's 1.75 billion barrels of oil-equivalent proved reserves would increase ChevronTexaco's reserve base as of the end of 2004 by about 15 percent.

It also expects a disposition of assets following the close of the transaction to result in proceeds of more than $2 billion. Annual savings from cost cuts are estimated by ChevronTexaco at more than $325 million before tax.

Lehman Brothers (LEH) was the financial adviser to ChevronTexaco, while Morgan Stanley & Co. Inc. acted as financial advisor to Unocal.