Texaco Inc. broke off merger talks with Chevron Corp. yesterday over issues of price and power.
In its first official acknowledgment that merger discussions had been held, Texaco issued a brief statement saying the company's board of directors had terminated the talks. Texaco is the nation's third-largest oil company, and Chevron is the fourth-largest.
"The Texaco board found no compelling basis for discussions to continue, and Chevron's proposal to be unacceptable for reasons including complexity, feasibility, risk and price," the company said.
A source familiar with the situation said last night that the two main stumbling blocks to a merger were the price Chevron was offering to pay for Texaco and the question of succession after a merger.
Chevron had offered $71.50 a share for Texaco, said the source, who referred to the price as "a pretty paltry offer." He said Texaco never made a counter-offer but it was no secret the company was looking for a price in the range of $80 a share, or $42 billion.
Another serious hitch was the issue of who would run the combined company after Chevron Chairman Kenneth Derr steps down in three years. Chevron insisted that Kerr's successor come from Chevron, but Texaco didn't want any part of that, the source said. "Texaco's position was that issues relating to management should be decided by the board of the combined company," the source said.
Derr, in response to the Texaco statement, said he was "surprised that the Texaco board turned down a very competitive offer that included a significant price premium to Texaco shareholders and an opportunity to receive Chevron stock, with its acknowledged growth prospects."
The merger talks, according to sources, were initiated by Texaco last August but never really became intense. Sources said that in the end Texaco viewed Chevron's offer as more of a takeover than a merger and rejected it.
This was not the first merger effort for Chevron this year. Chevron had tried to buy Atlantic Richfield Co. but lost out to BP Amoco, which agreed in March to buy Arco for $26.8 billion.
A merger of the two oil giants would have come on the heels of an even bigger deal, the $81 billion marriage of Exxon and Mobil.
In its brief statement announcing the break-off of negotiations, Texaco said there were many "attractive opportunities available to the company" and "Texaco intends to move forward aggressively to execute its business plan." Sources familiar with the situation insisted last night that the company was not in negotiations with anybody else and was not inviting anybody else into talks.
Oil companies have been rushing to merge this year as a way to preserve profits in an era of historically low oil prices. Although prices have risen in recent weeks, partly because of refinery shutdowns in the United States and promises of reduced production from Organization of Petroleum Exporting Countries members, big oil producers are still struggling.
Texaco released its statement after stock markets had closed. Texaco's shares ended the day up 31 1/4 cents at $64.50, and Chevron's stock closed up $1.56 1/4 at $92, both on the New York Stock Exchange.