EL PASO, Texas & SCOTTSDALE, Ariz. -- As reported in a CSP Daily News Flash yesterday, Western Refining Inc. and Giant Industries Inc. have announced a merger. After absorbing Giant, the new Western Refining will be the fourth largest publicly traded independent refiner and marketer in the United States, going from one to four refineries and gaining a retail network through Giant's 159 gas stations and convenience stores.
The boards of both companies have unanimously approved the agreement, under which Western Refining will acquire all of the outstanding [image-nocss] shares of Giant for $83 per share in cash. The transaction is valued at approximately $1.5 billion, including approximately $275 million of Giant's outstanding debt.
The merged company will have a total crude oil throughput capacity of approximately 216,000 barrels per day (bpd). In addition to Western's 117,000-bpd refinery in El Paso, Texas, Western Refining will gain an East Coast presence with a 62,000-bpd refinery in Yorktown, Va., and will gain two refineries in the Four Corners region of Northern New Mexico with a current combined capacity of 37,000 bpd.
Western Refining's primary operating areas will encompass the Mid-Atlantic region, far West Texas; Phoenix and Tucson, Ariz.; Northern Mexico; Albuquerque, N.M.; and the Four Corners region of Utah, Colorado, Arizona and New Mexico. In addition to the four refineries, Western's asset portfolio will include refined products terminals in Flagstaff, Ariz., and Albuquerque, as well as asphalt terminals in Phoenix, Tucson, Albuquerque and El Paso. Western's asset base will also include 159 retail stations and c-stores in Arizona, Colorado and New Mexico, a fleet of approximately 100 crude oil and finished product truck transports and two wholesale petroleum products distributors, Phoenix Fuel Co. Inc. in Arizona and Dial Oil Co. in New Mexico.
Following the close of the transaction, Paul Foster will remain president and CEO of Western Refining, and Fred Holliger will serve as a special advisor to Western Refining's board. The combined company will be headquartered in El Paso, Western Refining's home, and will maintain offices in Scottsdale, Ariz., Giant's home.
The transaction is subject to approval by Giant shareholders and the satisfaction of customary closing conditions and regulatory approvals, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. The transaction is expected to close in fourth-quarter 2006 and is not subject to any financing conditions.
With Giant, we will significantly increase our refining capacity in fast-growing, high-demand areas and gain an immediate footprint in new, complementary businesses, said Western Refining's president and CEO, Paul Foster. With this enhanced growth platform and Western's continued financial strength, we will be better able to capitalize on the strong fundamentals in our industry.
We're not only diversifying geographically but with Giant's retail and wholesale operations, we're also changing our business profile vertically, Foster added during a conference call. Giant's retail operations will provide Western with the opportunity to integrate vertically. Giant actually had its roots in the retail business and is known as a very good retailer. The stores provide an outlet for a great deal of gas produced at the four corners refineries. By steadily increasing same-store sales, Giant has demonstrated to indeed be a leader in the c-store business.
He said, This is absolutely the right time for this transaction; as you all know, refinery utilization rates have leveled off and at least in the short term, there is no relief in sight. It's apparent to us that demand will continue to stay ahead of supply capability. Because of these industry fundamentals, we believe the timing is right and consistent with our strategic plan. By adding size and diversity to an already strong company, we will maintain the ability to grow and prosper in a highly competitive industry.
Concerning plans for the Giant retail network, Foster said, We haven't had an opportunity really to examine that fully. We can tell you we're excited about the complimentary nature of that business and think it adds a lot to our overall strategy and portfolio. But there aren't any plans one way or the other with retail right now.
Fred Holliger, Giant's chairman and CEO, said, The transactionoffers our employees the opportunity to be part of a larger organization with greater economies of scale and resources needed for sustained success in our industry.
Currently, Western Refining generates most of its revenues from its refining operations in El Paso. Following the close of the transaction, it will generate revenue from four different refineries as well as a diverse mix of complementary retail and wholesale businesses. Western Refining said it will maintain the current Giant brands.
In terms of refining, Western Refining will double its lower-cost sour and heavy crude processing capacity from 12% to 25%; its sour and heavy crude processing capacity will reach 46% following the completion of its previously announced expansion program at its El Paso facility.
The company said expects the deal to generate refinery efficiencies and cost savings of approximately $20 million annually in 2008. It also said that it expects to derive approximately half of these synergies from improved efficiencies at its refineries and the remainder from savings achieved through the consolidation of overlapping functions. It said it does not expect significant workforce reductions. Western Refining said it expects the transaction to be immediately and significantly accretive to its cash flow and earnings per share, excluding one-time transaction costs.
Ruben Baca, state executive for the New Mexico Petroleum Marketers Association, told CSP Daily News, I'm not shocked, not really surprised by the deal. He said, Giant has positioned itself well and been very successful. With the acquisition of the Virginia refinery and paying down its debt, it's no secret that [Giant] would become attractive to somebody.
He added, Smaller-market guys might get a little bit nervous, because [someone like Western Refining] could be significant force to contend with. I don't know what the upside or the downside [of this transaction] is. We'll see what happens. I'd hate to see Giant Industries as they've been just go away, because they've always been a significant factor in our association. With Western Refining, I hope that will continue.
Click here to view Western Refining and Giant's overview presentation.
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