SCOTTSDALE, Ariz. -- Giant Industries Inc. OK'd Western Refining Inc.'s reduced offer to purchase Giant rather than wage an expensive court battle, the Scottsdale, Ariz., refiner-marketer said Tuesday, according to a report in the East Valley Tribune.
Chairman and CEO Fred Holliger said that, as part of the newly renegotiated deal, Giant got a 30-day reprieve to shop around for a better deal and a reduced breakup fee if it finds one, the report added. We have a number of parties we want to talk to and determine what kind of interest we have, Holliger [image-nocss] said during the company's third-quarter earnings conference call.
After absorbing Giant, the new Western will be the fourth largest publicly traded independent refiner-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.
If he finds something better than Western's discounted deal, Giant will have to pay $34 million, down from an original breakup fee of $37.5 million, to back out of the Western transaction, the report said.
Holliger told Wall Street analysts that the deal with Western Refining is back on track for an early 2007 closing. El Paso, Texas-based Western Refining said in late August that it would buy the Scottsdale company for $83 a share plus debt assumption, a deal worth $1.5 billion.
But Western said Monday it lowered its bid to $77 per sharedecreasing the value of the transaction by more than $100 millionbecause of Giant's disappointing financial performance, spurred mostly by a couple of refinery fires and the ensuing boost in insurance coverage.
On Monday, Giant reported net earnings of $44 million, or $3 per diluted share for the third quarter ended Sept. 30, 2006. Net earnings were $46.6 million, or $3.38 per diluted share in third-quarter 2005. It reported net earnings of $80.9 million, or $5.51 per diluted share, for the first nine months of 2006 compared to net earnings of $77.3 million, or $5.80 per diluted share in 2005.
"Strong financial performance from our Four Corners refineries and our retail and wholesale strategic business units contributed to the overall results in the third quarter, said Holliger. "In the third quarter, our retail operations continued to see growth in fuel volumes and merchandise sales. Same-store fuel volumes increased approximately 4% and same store merchandise sales increased approximately 5% over the prior year third quarter level. Throughout the quarter, we also experienced improvement in fuel margins. Also in the quarter, the number of retail locations that we operate increased from 134 to 153 as a result of an acquisition that we closed in mid-August. All of these factors contributed to an 88% improvement in third quarter profitability from our retail operations."
He added, "Our wholesale operations continued to experience strong demand for gasoline and diesel in both wholesale and cardlock operations; however, profitability was lower than the same quarter last year as fuel margins declined slightly from the prior year level."
Concerning the update on the proposed merger with Western Refining, Holliger said, Since we signed the original merger agreement, a number of unexpected events occurred that resulted in a change in the transaction terms. Central to these events were two recent fires at Giant's Ciniza and Yorktown refineries and the resulting effects on Giant's operations, including the costs and terms of Giant's insurance coverage. After careful consideration of these events, all of which were unforeseen when we announced the original transaction in August, the boards of directors of both companies decided that it still makes good sense to go forward with the transaction, but at an amended purchase price. While recent events have caused us to revisit some of the terms of the transaction, we still firmly believe this combination is in the best interests of all of our stakeholders."
Relative to fourth-quarter performance, Holliger concluded, "Our refining fundamentals, overall, are weaker now as compared to the same time last year, due in part to the narrowing of crack spreads from the post hurricane period of a year ago. In addition, our refining operations will be negatively impacted as a result of the recent fires until our units become fully operational. Same-store fuel volumes for our retail group are above the prior year's levels; however, fuel margins are lower. In addition, same store merchandise sales for our retail group are above the prior year's level, while same store merchandise margins have remained stable. The wholesale group currently is experiencing stable margins and volumes as compared to the same time last year."
Giant owns and operates one Virginia and two New Mexico crude oil refineries; a crude oil gathering pipeline system based in Farmington, N.M., which services the New Mexico refineries; finished products distribution terminals in Albuquerque, N.M., and Flagstaff, Ariz., a fleet of crude oil and finished product truck transports; and a chain of stations and c-stores in New Mexico, Colorado, and Arizona. It is also the parent company of Phoenix Fuel Co. Inc. and Dial Oil Co., both of which are wholesale petroleum products distributors.
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