Valero Energy, the biggest independent oil refiner in the US, is to acquire rival Premcor in a cash and stock deal worth $6.9 billion. As a result, Valero will add four refineries and 790,000 barrels per day 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. Adding Premcor’s refineries in Port Arthur, Texas; Memphis, Tennessee; Delaware City, Delaware; and Lima, Ohio will take Valero’s total to 19 refineries with a combined throughput capacity of 3.3 million barrels per day (BPD).
This transaction is one of the largest acquisitions in Valero’s history, said Bill Greehey, Valero chairman and CEO. 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 US 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, Greehey added.
Valero estimates the purchase will enable it to make $350 million in annual savings in the second year after closing due to reduced administrative costs, lower interest expenses, crude oil cost savings due to the company’s purchasing leverage, and operational profit improvements that require limited capital investment.
The equity portion of the transaction will be paid 50% in stock and 50% 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.