Acquisition Makes Valero the Largest Refiner in North America with
Throughput Capacity of 3.3 Million Barrels Per Day and Revenues of $70 Billion
OLD GREENWICH, Conn., April 25 /PRNewswire-FirstCall/ -- Valero Energy
Corp. (NYSE: VLO) and Premcor Inc. (NYSE: PCO) announced today that the
companies have executed a merger agreement for Valero to acquire Premcor in an
$8 billion transaction. As a result, Valero will add four refineries and
790,000 barrels per day (BPD) of throughput capacity to its system, making it
the largest refiner in North America.
With this acquisition, Valero will have total assets of $25 billion and
annual revenues of nearly $70 billion, which would rank it No. 15 on the
current listing of the Fortune 500. Adding Premcor's refineries in Port
Arthur, Texas; Memphis, Tennessee; Delaware City, Delaware; and Lima, Ohio
will give Valero 19 refineries with a total throughput capacity of 3.3 million
BPD.
"This transaction is one of the largest and most strategic acquisitions in
Valero's history," said Bill Greehey, Valero chairman and chief executive
officer. "We are acquiring several very strategic refineries for
significantly less than their combined replacement value, and we'll be
improving the profitability of these plants by capturing synergies, improving
their reliability and yields, and increasing their capacities.
"This acquisition gives us the best geographic diversity among U.S.
refiners with a presence in all of the major refining regions, which further
increases our earnings stability. What's more, it complements our complex
refining system and increases the amount of sour crude oil that we process.
"I can't think of a better acquisition for Valero and our shareholders
because it's expected to be significantly accretive to our earnings and cash
flow per share based on both our internal forecast and First Call consensus
estimates. We estimate that we'll benefit from $350 million in annual
synergies in the second year after closing. These will include reduced
administrative costs, lower interest expenses, crude oil cost savings due to
our purchasing leverage, and operational profit improvements that require
limited capital investment. And, we think that once we have a chance to
evaluate each facility more thoroughly, we will find that there are even more
synergy opportunities, just as we did with the Ultramar Diamond Shamrock
acquisition.
"This acquisition is also good news for consumers because we have a track
record of investing in and expanding our refineries. In fact, from 1996
through the end of this year, we will have increased our refining system's
throughput capacity by more than 380,000 BPD -- the size of two world-scale
refineries -- by expanding our existing facilities. Not only do we have the
expertise, we also have a strong balance sheet, an investment-grade credit
rating, access to low-cost capital and good cash flow, which enables us to
make the costly 'stay-in-business' environmental investments, as well as the
capital investments necessary to continue increasing our refining capacity,"
Greehey said.
Jefferson F. Allen, Premcor's chief executive officer, said, "This
transaction provides Premcor's shareholders with a meaningful increase in the
value of their investment, as the terms of the agreement represent a 24.6
percent increase over the closing price of our stock on April 22, 2005. In
addition, our shareholders will retain the option to continue participating in
the industry through common stock ownership in Valero, which, with this
transaction, will become the largest refiner in the United States and, more
importantly, has long been a high-quality, financially strong growth company
focused on creating shareholder value."
Thomas D. O'Malley, Premcor's chairman and holder of more than one million
shares of Premcor's common stock, said, "This transaction creates the number
one investment vehicle in the very attractive U.S. refining sector. The
resulting company has the financial strength to take advantage of the many
internal opportunities available within Premcor's existing refining system to
expand capacity, provide more clean fuels to the American consumer, and
continue to strengthen its performance from an environmental and safety
perspective. Valero has proven over the past ten years to be an extremely
efficient operator and has demonstrated a unique ability to grow both
externally and internally. I intend to remain a long-term and large
shareholder of the new Valero.
"Premcor's board of directors, after a very careful review of the
transaction, unanimously voted in favor of it. I sincerely appreciate the
confidence our shareholders have shown in our management and, in particular,
the level of support we have received from our large shareholders, the
Blackstone Group and Occidental Petroleum, and their direct representatives,"
O'Malley said.
Terms of the Transaction
The equity portion of the $8 billion transaction will be paid 50 percent
in stock and 50 percent in cash. At closing, Premcor shareholders will receive
46.7 million shares of Valero stock, valued at approximately $3.5 billion as
of April 22, 2005. The cash portion, which equates to $3.4 billion, will be
financed with a combination of cash on hand and bank debt. In addition,
Valero will assume an estimated $1.8 billion of Premcor's existing long-term
debt, offset by $800 million in cash as of Dec. 31, 2004. By year-end, Valero
expects the combined company to have $2 billion of available cash so it
anticipates issuing approximately $1.4 billion in new debt.
Under the terms of the merger agreement, Premcor shareholders will have
the right to receive either 0.99 shares of Valero common stock, or $72.76 in
cash for each share of Premcor stock they own, or a combination of the two,
subject to pro-ration so that 50 percent of the total Premcor shares are
acquired for cash. The merger consideration represents an approximate 20
percent premium to the recent 30-day trading range of Premcor's stock price.
Taking the effect of the acquisition into account, Valero's debt-to-
capitalization ratio is expected to be approximately 33 percent at the end of
2005, which is in line with the company's peer group. And, Valero expects to
retain its investment-grade credit rating upon closing of the merger.
Win-Win for Valero & Premcor Shareholders
"This is a win-win situation for the shareholders of both companies," said
Greehey. "Valero shareholders will benefit because the transaction is
expected to be approximately 14 percent accretive to earnings per share and
about 13 percent accretive to cash flow per share in the first year. And, with
increased profitability, more liquidity and better visibility, we think that
the market should realize the great value of our stock and assign a higher
multiple.
"And, Premcor shareholders will receive a substantial premium, lock in a
solid return with the cash portion of the agreement, and receive shares in
Valero so they'll have an opportunity to benefit from the upside potential,"
he said.
A Great Fit for Valero
"Tom O'Malley, Jay Allen and their team have done an outstanding job of
building Premcor into a first-rate energy company, and their refineries are a
great fit for our system and they meet our acquisition criteria. Each of
these refineries has a throughput capacity well in excess of 100,000 BPD; has
good logistics; enhances our geographic diversity; and has upgrade potential,"
said Greehey.
"Plus, there are significant benefits to bringing Premcor's refineries
into Valero's much-larger refining system. In addition to the operational
synergies, the refineries will benefit from our expertise in upgrading and
expanding refineries, our experience in sour crude processing and our
significant purchasing leverage.
"With this acquisition, we will have the most conversion capacity of any
U.S. refiner at around 2 million BPD. Of course, the more conversion capacity
that you have, the heavier and more sour feedstocks you can run and the more
gasoline and diesel you can make, which allows you to capture better margins.
"On a combined basis, our system would initially be processing around 1.8
million BPD of sour feedstocks. And, as projects such as the major expansions
at Port Arthur and Aruba come online, we will be increasing our sour crude
advantage," he said.
A New Era in Refining
"This acquisition couldn't come at a better time," Greehey said. "2005 is
off to a great start and we are right on track to have another record year.
Our first quarter earnings were 111 percent higher than the same period last
year, and of course, we had a record first quarter in 2004. Because of the
positive outlook, we believe that our trend of record-setting quarterly
results will continue into 2006 and beyond.
"Clearly, the refining industry has entered a new era. As a result, we
believe that we will continue to see higher highs and higher lows for both
sour crude oil discounts and product margins in the future," he said.
Valero's leverage to sour crude discounts is one of the biggest
contributors to its record earnings, Greehey noted. As oil demand continues
to grow, the increase is being met by medium and heavier sour crude oil, which
makes up approximately 70 percent of Valero's crude slate. Since there are a
limited number of refineries capable of upgrading these crude oils, there is a
growing surplus of these feedstocks, which helps keep sour crude discounts at
historic levels.
According to Greehey, Valero expects sour crude discounts to be at least
46 percent better in 2005 than they were in 2004, which would improve the
company's operating income by $1.6 billion this year.
"On top of that, there is limited refining capacity to meet the growing
demand for refined products, and it's going to be that way for quite some
time," Greehey said. "Even if major expansion projects were put in place
today, it would take four to five years to complete the engineering, get the
necessary permits and build the units. What's more, the bulk of most
refiners' capital is tied up meeting Tier II sulfur specifications through
2006 so investments in expansion projects will likely be limited. As a
result, refining margins should remain strong for the foreseeable future.
"2005 is shaping up to be another year of record earnings for Valero.
And, with such strong fundamentals and this great acquisition, our future has
never looked brighter," he said.
Timing & Transition
The boards of directors of both companies unanimously approved Valero's
acquisition of Premcor, which is subject to the approval of Premcor's
shareholders and customary regulatory approvals. The transaction is expected
to close Dec. 31, 2005, and both companies expect a smooth transition. There
will be no changes to Valero's senior management or board of directors.
Lehman Brothers acted as a financial advisor to Valero, and Morgan Stanley
served as a financial advisor to Premcor.
Valero Energy Corporation
Valero Energy Corporation is a Fortune 500 company based in San Antonio,
with approximately 20,000 employees and annual revenue of approximately $55
billion. The company owns and operates 15 refineries throughout the United
States, Canada and the Caribbean. Valero's refineries have a combined
throughput capacity of approximately 2.5 million barrels per day, which
represents approximately 12 percent of the total U.S. refining capacity.
Valero is also one of the nation's largest retail operators with more than
4,700 retail and wholesale branded outlets in the United States, Canada and
the Caribbean under various brand names including Diamond Shamrock, Shamrock,
Ultramar, Valero, and Beacon. Please visit http://www.valero.com for more
information.
Premcor Inc.
Premcor is one of the largest independent petroleum refiners and suppliers
of unbranded transportation fuels, heating oil, petrochemical feedstocks,
petroleum coke and other petroleum products in the United States. The company
owns and operates refineries in Port Arthur, Texas, Lima, Ohio, Memphis,
Tennessee and Delaware City, Delaware with a combined crude oil throughput
capacity of approximately 790,000 barrels per day. Please visit
http://www.premcor.com for more information.
WEBCAST: An analyst meeting is scheduled for 11:30 a.m. ET today at the
Waldorf Astoria Hotel in New York City at 301 Park Avenue. Analysts interested
in listening to the presentation may access it by dialing 866/262-0921,
reservation passcode 5773783. International callers may access the
presentation by dialing 706/634-0875, passcode 5773783. A live broadcast of
the conference call will also be available on Valero's web site at
http://www.valero.com.
Statements contained in this press release that state the Company's or
management's expectations or predictions of the future are forward-looking
statements intended to be covered by the safe harbor provisions of the
Securities Act of 1933 and the Securities Exchange Act of 1934. It is
important to note that the Company's actual results could differ materially
from those projected in such forward-looking statements.
Investors and security holders are urged to read the proxy
statement/prospectus that will be sent to Premcor stockholders regarding the
proposed merger, when it becomes available, because it will contain important
information. The proxy statement/prospectus will be filed with the Securities
and Exchange Commission by Valero and Premcor. Investors and security holders
may obtain a free copy of the proxy statement/prospectus, when it is
available, and other documents filed by Valero and Premcor with the Commission
at the Commission's web site at http://www.sec.gov. The proxy statement/prospectus
and these other documents may also be obtained, when available, free of charge
from Valero and Premcor. Stockholders should read the definitive proxy
statement/prospectus carefully before making a decision concerning the merger.
Premcor, and its directors, executive officers and certain other of its
employees, may be soliciting proxies from its stockholders in favor of the
approval of the merger. Information regarding the persons who may, under SEC
rules, be deemed to be participants in the solicitation of Premcor
stockholders in connection with the merger is set forth in Premcor's proxy
statement for its 2005 annual meeting, filed with the SEC on April 1, 2005,
and additional information will be set forth in the definitive proxy
statement/prospectus referred to above when it is filed with the SEC.
SOURCE Premcor Inc.
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Related links:
http://www.premcor.com
http://www.valero.com
CONTACT:
Media\Investors - Karyn Ovelmen of Premcor
Inc., +1-203-698-5669; or Media - Mary Rose Brown,
+1-210-345-2314, or Investor Relations - Eric Fisher,
+1-210-345-2896, both of Valero
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