The View on Valero

Reliance says it won't pursue deal to acquire U.S. refiner-marketer

NEW DELHI -- Valero Energy Corp.'s shares fell nearly 8% after India's Reliance Industries Ltd., owner of the world's biggest refining complex, said it is not considering acquiring the U.S. refiner-marketer, according to a Reuters report.

"Reliance wishes to dispel the rumors and announce that it is not in discussions with Valero nor otherwise considering an acquisition of Valero," the company said in a statement obtained by the news agency.

Companies typically do not comment on market speculation, but Reliance said it was taking the step because of the materiality of the rumored deal.

Last week, Valero's shares climbed 13% in a rally fueled by a report in the Daily Mail that the refiner was being sought after by both Reliance and Royal Dutch Shell. China National Offshore Oil Corp. (CNOOC) is also rumored to be interested.

A number of large oil companies including BP Plc and ConocoPhillips are scaling back exposure to the refining sector, said the report. As a result, there are a number of plants on the market in the United States, where Valero is the largest independent refiner.

"The reality is, the current environment for mergers and acquisitions has been really limited," Ann Kohler, an analyst at CRT Capital Group, told the news agency.

Shell, which already owns or has an interest in six refineries in the United States, may also run into regulatory problems with a bid for Valero, Kohler said.

The Northeast market, where there are three refineries for sale, is especially tough, Reuters said. The plants process more expensive Brent crude oil and would require hefty investment to be able to process cheaper oil.

A spokesperson for Valero, which is due to report third-quarter earnings today, declined to comment on Reliance's statement. A representative for Shell also declined to comment.

San Antonio, Texas-based Valero, through its subsidiaries, is an international manufacturer and marketer of transportation fuels, other petrochemical products and power. Valero assets include 15 petroleum refineries with a combined throughput capacity of approximately 2.9 million barrels per day, 10 ethanol plants with a combined production capacity of 1.2 billion gallons per year, and a 50-megawatt wind farm. Valero is also one of the largest retail operators with approximately 6,800 retail and branded wholesale outlets under the Valero, Diamond Shamrock, Shamrock and Beacon brands in the United States and the Caribbean; Ultramar in Canada; and Texaco in the United Kingdom and Ireland.