Unocal Corp.’s headquarters in El Segundo, with its 125 employees, might be shuttered as a result of its $16.4 billion cash and stock acquisition by ChevronTexaco as the oil giant squeezes out operating efficiencies.
David Reilly, chairman and chief executive of ChevronTexaco, said the company plans to sell $2 billion in poorly performing assets of the independent oil and gas producer and expects to reap another $300 million in cost savings through “synergies.”
“Two-thirds of the synergy estimate is pure cost reduction from overlapping operations,” Reilly told analysts in a Monday morning conference call, adding he did not want to be “very specific about where the assets are that would be sold.”
In a deal announced Monday, ChevronTexaco, the second-largest U.S. integrated oil company, agreed to pay $62 a share to buy Unocal a 3.7 percent discount off Friday’s close of $64.35 a share. Chevron also will assume $1.6 billion in Unocal debt.
The deal is structured at 75 percent stock and 25 percent cash. Unocal stockholders will get either 1.03 share of ChevronTexaco or $65 in cash for each of their shares.
ChevronTexaco beat out Italian oil company Eni SpA (E) and China National Offshore Oil Corp. in the bidding for Unocal, the ninth-largest U.S. oil company by reserves. Unocal has a market cap of $17.4 billion.
The sale will boost ChevronTexaco’s reserves in Asia, where Unocal has invested some $5 billion in Indonesian oil and gas properties and where Chevron-Texaco is the biggest producer.
Fadel Gheit, an analyst at Oppenheimer & Co., said “reductions and office closings” are inevitable, noting that corporate headquarters are often a prime target. “The reality is, there will be both large staff reductions and office closings,” he said. “This is how companies realize cost savings.”
Gheit expects that ChevronTexaco will sell almost all of Unocal’s onshore assets in the lower 48 states and will get “top price” for them. Those are not the assets ChevronTexaco sought in the sale and most independent producers are flush with cash and have little other investment opportunities, he said.
Some analysts are already calling the acquisition by ChevronTexaco a “sweetheart deal,” but others are saying Unocal investors should be disappointed by the price.
A Unocal official on Monday defended the discounted sale price, noting that Unocal’s stock was trading at a premium. Unocal stock had risen almost 50 percent since January when it was reported that China National had entered into discussions to buy the company.
“The stock was probably not trading at the level that would have been appropriate to our competitors,” Terry Dallas, Unocal’s chief financial officer, said in the Monday conference call.
Unocal’s chairman and chief executive Chuck Williamson said that because 75 percent of the deal is in ChevronTexaco stock, “for those that like the business and like the prospects, this is still a hell of a good deal, I think.”
ChevronTexaco officials talked little about the environmental liabilities the company will be assuming from Unocal, which has had a spate of troubles.
“We don’t anticipate any hits, if you will, as a result of that,” said Steve Crowe, ChevronTexaco’s chief financial officer.
The Bangladesh government is seeking $600 million for environmental damage caused by a 1997 fire at a gas field operated by Occidental Petroleum Corp. Unocal later bought the field and agreed to shoulder all liabilities but has settled claims only related to the fire, not environmental damage, according to published reports.
Unocal also was a minority partner in a consortium that built a pipeline in Myanmar in which villagers alleged they were used as a slave labor. Under a deal last year, Unocal agreed to pay 14 villagers an undisclosed sum.
