Company buying Premcor

Monday, April 25, 2005 | 9:45 a.m.

Valero Energy Corp. agreed to buy Premcor Inc. for $6.9 billion in cash and stock to form the largest U.S. refiner as record prices for gasoline and other fuels boost profit.

Valero, the third biggest in the U.S. now, will pay $3.4 billion in cash and issue $3.5 billion in stock, the companies said in a statement today. Holders of Premcor can sell each of their shares for 0.99 Valero share or $72.76 in cash, 23 percent more than Friday's closing price.

The purchase, which pushes Valero past Exxon Mobil Corp. and ConocoPhillips in the U.S., is the biggest takeover yet for Chief Executive William Greehey. He has built San Antonio-based Valero through more than $7.5 billion of acquisitions in seven years as environmental concerns and lower margins as recently as 2002 kept new refineries from being built.

"We think this is a very significant deal for the U.S. refining industry," said Dariusz Kowalczyk, senior investment strategist at CFC Securities Ltd. in Hong Kong. "It creates a powerful player in the crude product market, which may lead to lower competition, higher margins, upward pressure on product prices and an increase in profitability of companies present in the market."