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Texaco And Shell?


BusinessWeek Investor -- Inside Wall Street

Texaco and Shell?

Oil stocks are hot, thanks to the leap in world petroleum and natural-gas prices. A big mover is Texaco (TX), second only to ExxonMobil in the U.S. "Texaco's [production] operation is one of the most sensitive to the rise in prices," says analyst Jordan Horoschak of Standard & Poor's. More riveting to some big investors is Texaco's allure as a takeover target.

These pros say that Royal Dutch Petroleum has been in touch with Texaco for a possible cash-and-stock buyout deal. Royal Dutch controls Royal Dutch/Shell Group.

One trader says that much of the recent buying of Texaco stock and options is by Europeans. This reinforces his belief that Royal Dutch, based in The Hague, is about to make a move. Royal Dutch's American depositary receipts trade on the New York Stock Exchange.

"Texaco would be an excellent acquisition for Royal Dutch," says Stephen Leeb, editor of market letter Personal Finance. Based on the company's assets, reserves, and price-earnings ratio, Texaco's stock is far cheaper than its peers', says Leeb. In a buyout, he figures Texaco, now at 58, is worth 75 to 80, or $41 billion to $44 billion. Its 1999 revenues were nearly $35 billion.

Horoschak says Texaco is under pressure to get larger, thanks to stiff competition from Exxon Mobil. A year ago, Texaco called off buyout talks with Chevron, saying Chevron's bid was too low. "I wouldn't be surprised if Texaco ends up partnering with Royal Dutch," says the analyst.

In 1998, Texaco and Shell Oil merged some U.S. refining and marketing operations, with Shell owning 56% and Texaco 44%. The next step, he says, may be to get together entirely. Texaco spokesman Chris Gidez says they don't comment on speculation. Royal Dutch couldn't be reached for comment.By Gene G. MarcialReturn to top

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