VALERO buying rival refinery company Ultramar for $4 billion in cash, stock

Monday, May 7th 2001, 12:00 am

By: News On 6

SAN ANTONIO (AP) _ Valero Energy Corp. is buying Texas rival Ultramar Diamond Shamrock Corp. for about $4 billion in cash and stock in a deal that will make Valero the second-largest U.S. refiner of petroleum products.

The acquisition, announced Monday, was approved by both companies' boards over the weekend. It still must be approved by both companies' shareholders and regulators.

The new organization will have $32 billion in annual revenue, more than $10 billion in assets, 23,000 employees in the United States and Canada and 13 refineries. Valero will also be one of the nation's largest retailers with more than 5,000 retail outlets in the U.S. and Canada.

Valero said acquiring Ultramar Diamond Shamrock will make it second only to Irving, Texas-based Exxon Mobil Corp. in refining capacity.

``We're combining the two best independent refining and marketing companies to make the premier refiner and marketer in the U.S.,'' Bill Greehey, Valero's chairman of the board and CEO, said in a prepared statement.

Valero will pay 1.228 shares of Valero common stock for about half of the outstanding shares of Ultramar Diamond Shamrock common stock, and $55 in cash per share for the remaining shares.

That represents a 29 percent premium over Ultramar's closing price of $42.71 a share on Friday. Valero finished last week at $45.47 a share.

Valero will also assume $2 billion in Ultramar debt as part of the deal.

``UDS shareholders will receive a substantial premium, which reflects a more appropriate valuation for the stock and captures value that the market has otherwise been slow to recognize,'' said Jean Gaulin, UDS chairman of CEO. ``They will also lock in a solid return with the cash portion.''

Greehey said Valero's refining system will benefit from combining with the UDS refining, logistics and retail network. Seven UDS refineries, with a combined capacity of 850,000 barrels per day, will expand Valero's presence in Texas and California and give it a new presence in Colorado, Oklahoma and Quebec, Canada.

The new company's board will expand to 13 members with the addition of four UDS directors. Greehey will remain Valero chairman and CEO, while Gaulin will continue to run UDS until the closing and help with organizing the new Valero.

Gaulin would then retire and step down from the board of directors.

Valero, based in San Antonio, has about 3,100 employees and 2000 revenues of nearly $15 billion. The company currently owns and operates six refineries in Texas, Louisiana, New Jersey and California with a combined capacity of more than 1 million barrels per day.

Ultramar Diamond Shamrock has about $17 billion in annual revenues and more than 20,000 employees. Its seven refineries in the United States and Canada have a capacity of 850,000 barrels per day.

It also has nearly 5,000 branded gasoline and convenience stores, the majority of which are branded Diamond Shamrock, Ultramar, Beacon or Total.