Ultramar Corp., Long Beach, and Diamond Shamrock Inc., San Antonio, have agreed to "a merger of equals" that vaults the resulting company into the top rank of U.S. independent refiner/marketers.
The merger creates a combined concern with a significantly broader geographical reach in refining and marketing. The new company will have combined revenues of more than $8 billion and combined equity market value in excess of $2.3 billion.
The merger gives Diamond Shamrock access to Ultramar's established markets in California and eastern Canada, while Ultramar gains from its partner a strong presence in the U.S. Southwest.
Diamond Shamrock's shareholders will receive 1.02 shares of Ultramar common stock for each Diamond Shamrock share they own.
Combined operations
Roger Hemminghaus, chairman, chief executive officer, and president of Diamond Shamrock, said the merger will create the third largest independent refiner in the U.S., with combined capacity of 475,000 b/d.
Diamond Shamrock has refineries at Three Rivers and McKee, Tex., with total capacity of 225,000 b/d. Ultramar has refineries at Wilmington, Calif., and St. Roumald, Que., with combined capacity of 250,000 b/d.
First and second largest independents, respectively, are Sun Refining & Marketing Co., with total capacity of 692,000 b/d, and Tosco Corp., with total capacity of 476,500 b/d.
In the retail sector, Diamond Shamrock is the largest gasoline marketer in Texas, with a 16% share of the market, and the second largest marketer in Colorado and New Mexico. Diamond Shamrock also sees revenues of about $1 billion/year from its large convenience store operation. All told, the company has 2,700 gasoline/convenience store outlets. In addition, Diamond Shamrock produces petrochemical feedstocks and operates a natural gas liquids storage plant.
Ultramar's retail operation includes 360 service stations in California and 1,400 retail outlets in eastern Canada. Within this network, Ultramar operates 110 convenience stores. Ultramar also is one of the continent's largest home heating oil suppliers, serving more than 175,000 customers in New England and Eastern Canada.
The new company will be named Ultramar Diamond Shamrock Corp. and be headquartered in San Antonio. Under the transition plan, Hemminghaus will serve initially as chairman and CEO of the combined company, and Jean Gaulin, chairman, chief executive officer, and president of Ultramar, will serve as vice-chairman, president, and chief operating officer. By yearend 1998, Gaulin will become the combined company's CEO and assume the chairmanship within 3 years thereafter.
Cost savings, efficiencies
The companies project savings of at least $75 million/year, based on better operating efficiency and reduced overhead and administrative costs, with $25 million in savings to be realized in 1997, and the full amount to be realized each succeeding year.
The transaction poses some $50 million in transition costs and $17 million in one-time transaction costs. The companies say most of these costs will be booked in 1996 and not hurt earnings.
Consolidation of the operations will cost about 200 jobs out of the combined work force of about 17,000 employees.
Gaulin said Ultramar will market primarily under the Diamond Shamrock brand in California but retain some use of the Beacon brand in the state as well. In Canada, the company will continue marketing under Ultramar and Sergaz brands. Ultramar had planned to spend about $50 million the next 3 years building new stations in both markets but now will delay some of these plans, Gaulin added.
Hemminghaus is interested in the potential to supply the growing Arizona market more effectively. Diamond Shamrock soon will complete a pipeline between its McKee refinery and El Paso, where it will tie into the Santa Fe pipeline, he noted. Once the merger is complete, the combined company will have the potential to supply Arizona from both the Gulf and West coasts.
The merger is subject to both stockholder and regulatory approvals. Hemminghaus and Gaulin said they hope all approvals will be in place by yearend.
Merger of equals
"This is truly a merger of equals between two strong companies that fit together remarkably well," Hemminghaus said.
"By joining together, we will leverage both companies' considerable strengths in refining and marketing and create new opportunities for cost savings and strategic expansion. The merger will position the new company for greater penetration of attractive western U.S. markets, including Arizona, California, and Nevada."
"Ultramar and Diamond Shamrock are ideal partners," said Gaulin. "Diamond Shamrock's large retail network and significant presence in the U.S. Southwest strongly complement Ultramar's refining and marketing operations in California and Canada. With such strong regional anchors, our new company has tremendous potential to expand into new markets and improve performance in existing ones."
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