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Tuesday April 26, 08:51
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Valero struggles to enter top refiner line by buying Premcor
(by Helen Snow)
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Yesterday, Valero Energy, the largest independent refiner in the United States, announced its intention to acquire its small rival Premcor. The move can bring huge profits at a time when oil prices are at the record high and make Valero the most competitive refiner in the US, going beyond the country’s leader Exxon Mobil.
Valero has been providing expanding policy since 1998, having spent about $8 billion to buy 14 small rival refineries. Its ability to process cheaper, heavy oil into more expensive higher-grade light products let it overrun its closest rivals. Counting with Premcor, Valero’s refineries will total 19, as its refining capacity will boost to 3.3 million barrels a day.
According to deal terms, Valero is to pay $3.5 billion in stock and $3.4 billion in cash for Premcor.
The acquisition forced stock of both companies to rise yesterday as Valero gained 1.1%, to $75.87 a share, and Premcor floated 18%, to $69.70 a share.
However, the danger that rating agencies might cut Valero’s debt to junk status can appear in case the deal comes into effect as Valero would also incur Premcor’s $1.8 billion debt and $800 million debt of cash.
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