Valero Buys UDS

In the second recent blockbuster merger involving petroleum companies, independent refining giants Valero Energy Corp. announced the acquisition of neighboring rival Ultramar Diamond Shamrock Corp., the seventh largest convenience store chain with 2,600 units, according to the 2000 Convenience Store News Top 50 report.

The acquisition, which comes on the heels of the $9 billion Phillips Petroleum Co.-Tosco Corp. merger, makes Valero the largest independent refining and marketing company in the country, and the nation's second largest refiner, behind only Exxon Mobil Corp.

"We're going to be the only major independent refining and marketing company," Valero CEO and Chairman Bill Greehey said in a news conference this morning. "We've separated ourselves from the rest of the independent companies.

In explaining the deal, UDS CEO Jean Gaulin said, "The two organizations have a similar culture. It's much better to bring both organizations under one leader, one culture and corporate logo." Gaulin, who had commandeered record profits every year since he assumed the helm at UDS, said he would step down once the transition is complete.

Valero, which only recently jumped into the retailing sector when it acquired 60 company-owned stores and a jobber network of more than 250 sites from Exxon as part of its merger with Mobil Corp., now becomes one of the dominant convenience store players.

Valero has been mentioned in numerous acquisition rumors over the last six months. In February, however, Greehey said Valero was not interested in merging with a large integrated oil company. At the time, he said, the company was pursuing an aggressive approach toward acquiring more refineries, including El Paso Energy Corp.'s plants in Texas.

The new organization, which will remain under Valero's banner, will employ 23,000 people in the U.S. and operate 13 refineries with a total throughput capacity of nearly two million barrels a day. The acquisition lifts Valero's annual revenues to $32 billion and total assets of more than $10 billion.

In the news conference, Greehey said the deal will not result in any layoffs, but would bring a hiring freeze on unfilled positions.

In response to a reporter's question, Greehey said the acquisition is not the last for Valero. "We're not done. We've got a strong balance sheet. We're going to continue building the company. We're going to do it through expansion and acquisition."

Valero and UDS will hold shareholder meetings in September and hope to obtain federal approval by Oct. 31.