NEW YORK -- ChevronTexaco Corp. is considering making an unsolicited bid for either Phillips Petroleum Co. or Conoco Inc. in an effort to thwart the proposed $17.1-billion merger between the two companies, The Wall Street Journal reported in its online edition this morning.
ChevronTexaco's board is slated to consider an offer at a meeting today, according to the report, which cited sources close to the company. As of last night, ChevronTexaco had not decided which of the two companies to pursue, the Journal reported.
The Phillips-Conoco merger, which would create the third-largest U.S. oil company, was expected to close in the second half of the year, despite speculation that another oil company would try to block the deal with a competing bid.
As previously reported in The Oilspot News with FlashPoint, France's Totalfina Elf S.A. was considered a potential suitor of one or both companies. But although it recently retained Lehman Brothers Holdings Inc. to explore a potential offer, TotalfinaElf Chairman and Chief Executive Officer Thierry Desmarest (pictured) today dampened further speculation, telling reporters and analysts the attraction of such a deal is limited following his company’s 34-percent fourth-quarter profit decline, announced this morning.
``We have to be very selective and limit ourselves to projects where synergies are high,'' Desmarest said. ``For the time being, I cannot think of any other operation with similar or of sufficient interest for us to decide to embark on this.''
The Phillips-Conoco deal has been seen as vulnerable because it carries no premium for shareholders, and might not pose a material challenge to domestic leaders Exxon Mobil Corp. and ChevronTexaco.
Meanwhile, ChevronTexaco, created in a $38-billion combination last year, is already experiencing some difficulty in putting the pieces together. On Tuesday, the company reported a $2.5-billion fourth-quarter loss, as it took merger-related charges of $1.2 billion. It now expects merger expenses to total $2 billion, $500 million more than its initial estimate.
Analysts say Conoco would be an easier target for ChevronTexaco than would Phillips, given potential antitrust concerns related to the companies’ West Coast refining operations.
Still, perhaps seeing the potential for competing bids, Phillips and Conoco wrote a
$550 million breakup fee into the merger agreement -- a figure that would certainly deter other bids. In addition, the two companies retained six of the industry’s top financial advisors to manage the deal, unusual for a friendly merger. According to the Journal report, some see the move as a defensive one: by tying up six bank, they have effectively hoarded the industry’s financial talent and weakened the field of potential merger advisors available to competitors. The advisers will share $60 million in fees, according to the report. Phillips hired J.P. Morgan Chase & Co., Merrill Lynch & Co. and Goldman Sachs Group Inc. Conoco hired Morgan Stanley Dean Witter & Co., Credit Suisse First Boston and Salomon Smith Barney Inc.
