Filed by Ultramar Diamond Shamrock Corporation
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: Ultramar Diamond Shamrock Corporation
Commission File No. 1-11154
On May 7, 2001, Valero Energy Corporation ("Valero") and Ultramar Diamond
Shamrock ("UDS") issued the following press release and supplemental
information.
* * * *
The enclosed materials contain forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These statements are based on management's current expectations and
beliefs and are subject to a number of factors and uncertainties that could
cause actual results to differ materially from those described in the
forward-looking statements. The forward-looking statements contained in this
release include statements about future financial and operating results and the
proposed Valero/UDS merger.
The following factors, among others, could cause actual results to differ
materially from those described in the forward-looking statements: the risk that
Valero's and UDS's businesses will not be integrated successfully; costs related
to the merger; failure of the Valero or UDS stockholders to approve the merger;
and other economic, business, competitive and/or regulatory factors affecting
Valero's and UDS's businesses generally as set forth in Valero's and UDS's
filings with the Securities and Exchange Commission, including their Annual
Reports on Form 10-K for the fiscal year ended 2000, especially in the
Management's Discussion and Analysis section, their most recent Quarterly
Reports on Form 10-Q and their Current Reports on Form 8-K. Valero and UDS are
under no obligation to (and expressly disclaim any such obligation to) update or
alter their forward-looking statements whether as a result of new information,
future events or otherwise.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE JOINT PROXY
STATEMENT/PROSPECTUS REGARDING THE BUSINESS COMBINATION TRANSACTION REFERENCED
IN THE FOREGOING INFORMATION, WHEN IT BECOMES AVAILABLE, BECAUSE IT WILL CONTAIN
IMPORTANT INFORMATION. The joint proxy statement/prospectus will be filed with
the Securities and Exchange Commission by Valero and UDS. Investors and security
holders may obtain a free copy of the joint proxy statement/prospectus (when it
is available) and other documents filed by Valero and UDS with the Commission at
the Commission's web site at www.sec.gov. The joint proxy statement/prospectus
and these other documents may also be obtained for free from Valero and UDS.
READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY BEFORE MAKING A
DECISION CONCERNING THE MERGER.
Valero and UDS, and their respective directors, executive officers and certain
other of their respective employees, may be soliciting proxies from their
respective stockholders in favor of the approval of the merger. Information
regarding the persons who may, under SEC rules, be deemed to be participants in
the solicitation of Valero and UDS stockholders in connection with the merger is
set forth, in the case of Valero, in Valero's proxy statement for its 2001
annual meeting, filed with the SEC on March 28, 2001, and in the case of UDS, in
UDS's proxy statement for its 2001 annual meeting, filed with the SEC on March
27, 2001, and additional information will be set forth in the definitive proxy
statement/prospectus referred to above when it is filed with the SEC.
* * * *
THE FOLLOWING IS A PRESS RELEASE ISSUED BY VALERO ENERGY CORPORATION AND
ULTRAMAR DIAMOND SHAMROCK ON MAY 7, 2001:
FOR IMMEDIATE RELEASE CONTACTS:
- -------------------------------------- -----------------
VALERO ENERGY CORPORATION UDS
Mary Rose Brown (Media) Tara Ford (Media)
(210) 370-2314 (210) 592-4163
Lee Bailey (Investor Relations) Scott Spendlove
(210) 370-2139 (Inv. Rel.)
(210) 592-4019
VALERO ENERGY CORP. TO ACQUIRE ULTRAMAR DIAMOND SHAMROCK CORP.
$6 BILLION TRANSACTION TO CREATE SECOND-LARGEST U.S. REFINING COMPANY
SAN ANTONIO, May 7, 2001 - Valero Energy Corp. (NYSE: VLO) and Ultramar Diamond
Shamrock Corp. (NYSE: UDS) jointly announce that the companies have reached an
agreement for Valero to acquire UDS, which will make Valero the second-largest
United States refiner of petroleum products. The new organization will have
23,000 employees in the United States and Canada, 13 refineries and a total
throughput capacity of just under 2 million barrels per day (BPD). Valero will
also be one of the nation's largest retailers with more than 5,000 retail
outlets in the U.S. and Canada.
With this acquisition, Valero will have annual revenues of $32 billion and total
assets of more than $10 billion. In terms of refining capacity, Valero will now
be second only to ExxonMobil.
The transaction is expected to be highly accretive to earnings, cash flow and
returns based on current First Call consensus estimates.
"We're combining the two best independent refining and marketing companies to
make the premier refiner and marketer in the U.S.," said Bill Greehey, Valero's
chairman of the board and CEO. "Obviously this will bring tremendous benefits to
both of our organizations and to our shareholders. In fact, in refining and
marketing, we will be the only major independent of a size and scope equal to
the majors.
"Combining Valero's complex refining system and the extensive UDS refining,
logistics and retail network gives us a superior asset portfolio that will allow
us to effectively compete in this rapidly consolidating business. We will
realize tremendous synergies and strategic benefits while enhancing earnings
stability. And, we are fortunate to bring aboard such a high-quality management
team and workforce that is among the best in the industry."
The total value of the transaction is approximately $6 billion, which includes
approximately $4 billion in equity and $2 billion in assumed debt. The total
consideration to be paid to UDS stockholders in the transaction equates to a
fixed exchange ratio of 1.228 shares of Valero common stock for approximately
half of the outstanding shares of UDS common stock, and $55 dollars in cash per
share for the remaining shares of UDS common stock. The cash consideration and
the stock consideration per UDS share each represent an approximate 30% premium
to UDS shareholders based on the 10-day average per share prices ending April
26th. UDS shareholders will be able to elect to receive either cash or Valero
common stock for each share of UDS common stock they own, subject to pro-ration,
with the consideration, whether paid in cash or stock, having a value equal to
the average of $55.00 and the value of 1.228 shares of Valero common stock over
a measurement period prior to closing.
"This really is a winning combination for our stockholders," said Jean Gaulin,
chairman of the board and CEO of UDS. "UDS shareholders will receive a
substantial premium, which reflects a more appropriate valuation for the stock
and captures value that the market has otherwise been slow to recognize. They
will also lock in a solid return with the cash portion. Valero shareholders will
benefit from a transaction that is immediately and significantly accretive to
earnings and cash flow per share. Since UDS shareholders will own 40 percent of
the company, both sets of shareholders will benefit from the increased
profitability of the company going forward. And because larger companies have
more liquidity and visibility, we are optimistic that the market will assign a
higher multiple valuation to the new company."
REFINING AND LOGISTICS ASSETS
With the addition of the UDS refining assets, Valero will have the most
geographic diversity among U.S. refiners. The seven UDS refineries, which have a
combined capacity of 850,000 BPD, will expand Valero's presence in Texas and
California, while giving it new locations in Colorado, Oklahoma and Quebec,
Canada. Like Valero, the UDS refineries are also generally high-conversion
facilities which produce premium, cleaner-burning fuels including reformulated
gasoline, California's cleaner-burning CARB gasoline and CARB diesel, all of
which sell at a premium to conventional gasoline. Valero will also acquire
Ultramar Diamond Shamrock's extensive, 4,600-mile proprietary pipeline network,
including the Shamrock Logistics MLP and associated assets, that reduce the
refineries' feedstock supply costs and distribute products at a higher netback.
"We will benefit from enhanced financial performance through realization of
numerous potential synergies among the facilities, including multi-refinery
purchasing and inventory optimization," said Greehey. "We estimate that these
synergies will have a benefit in excess of $200 million annually."
GREATER EXPOSURE TO POSITIVE FUNDAMENTALS
The transaction also comes amid the very strong refining industry fundamentals
that have helped both companies achieve record earnings recently.
"The current industry fundamentals and the long-term outlook for our business
have never been better," said Greehey. "Refined product inventories continue to
trend at historically low levels. At the same time, gasoline and distillate
demand remain strong. With limited excess refining capacity in the U.S., there
is very little room for inventories to build substantially in the near future.
This should continue to keep the supply/demand balance tight and support healthy
refining margins going forward.
"We continue to see gasoline demand better than last year's levels and expect to
see a good driving season," he added. "And now more than ever, Valero is poised
to seize the greatest benefits from these fundamentals because we will continue
to have the most leverage to improved refining margins."
MARKETING ASSETS
Branded Ultramar, Diamond Shamrock, Beacon and Total, UDS has more than 2,500
company-owned sites throughout the West, Southwest and Mid-continent of the
United States and in Eastern Canada, which are among the fastest growing markets
in the country. The company also supplies approximately 2,500 dealer, truck stop
and cardlock sites primarily in the Southwest and Mid-continent regions of the
United States and in Eastern Canada.
The company-owned stores have extensive brand support programs such as
proprietary consumer and fleet credit cards, radio and television brand support,
and strong in-store marketing programs, to which Valero will be able to add its
350-store retail network in California.
In addition, UDS operates one of the largest home heating oil businesses in
North America that sells heating oil to approximately 250,000 households.
"We're excited to substantially grow our retail presence because retail margins
are counter-cyclical to refining margins, so in the event we experience lower
refining margins, retail margins will help stabilize our earnings," said
Greehey. "We are fortunate because UDS has created one of the best retail
networks in the country with excellent leadership and strategic vision. And with
the size and quality of their retail network, we will benefit from the earnings
stability that can be achieved by having retail exposure without diluting the
leverage we have to refining margins. So we will truly have the best of both
worlds."
TIMING, TRANSITION AND FUTURE
Greehey will remain chairman and CEO of Valero and the company's board of
directors will grow to 13 members with the addition of four UDS directors.
Gaulin will continue to run UDS until the closing and will work with Greehey on
the organization of the new Valero. He will then retire and step down from the
board of directors.
The boards of directors of both companies have approved the transaction, which
is subject to the approval of both companies' shareholders and regulatory
approvals. The acquisition is expected to close by the end of the year and
Greehey noted that a smooth transition is anticipated. Morgan Stanley & Co.
Incorporated is serving as Valero's financial advisor and provided a Fairness
Opinion letter related to the transaction, and Credit Suisse First Boston is
also providing a Fairness Opinion letter to Valero. Banc of America Securities,
LLC is advising UDS.
"Valero has demonstrated that we deliver on the transactions we announce and
that we integrate those acquisitions smoothly and effectively," Greehey said.
"The fact that UDS is in San Antonio will contribute to making this transition
even easier. The combined company will benefit from having the best of both
management teams and the assets to build upon for the future.
"And, we're not done! With the financial capacity we'll have, we fully intend to
expand our business, grow the company and continue to deliver value to our
shareholders."
VALERO ENERGY CORPORATION
Valero is a Fortune 500 company based in San Antonio, with approximately 3,100
employees and 2000 revenues of nearly $15 billion. The company currently owns
and operates six refineries in Texas, Louisiana, New Jersey and California with
a combined throughput capacity of more than 1 million BPD. Valero is recognized
throughout the industry as a leader in the production of premium,
environmentally clean products such as reformulated gasoline, CARB Phase II
gasoline, low-sulfur diesel and oxygenates. The company markets its products in
34 states through an extensive bulk and rack marketing network, in California
through approximately 350 retail locations, and in selected export markets in
Latin America.
ULTRAMAR DIAMOND SHAMROCK CORPORATION
Ultramar Diamond Shamrock Corp. has approximately $17 billion in annual revenues
and more than 20,000 employees. The company operates seven refineries in the
United States and Canada with a total throughput capacity of 850,000 barrels per
day and has nearly 5,000 branded retail gasoline/convenience merchandise stores,
the majority of which are branded Diamond Shamrock, Ultramar, Beacon or Total.
The corporation also has growing petrochemicals and home heating oil businesses.
WEBCAST - An analyst meeting is scheduled for 10 a.m. EDT Monday, May 7, at the
- -------
St. Regis Hotel in New York City. To listen, go to www.valero.com or
--------------------
www.udscorp.com, enter the Investor Relations page and click on the "Live
- -----------------------
Webcast" link. A replay of this broadcast will be available on both websites
following the presentation.
SATELLITE FEED - a satellite feed will be available on Monday, May 7 at 12-12:15
- --------------
p.m. (EDT) and 5-5:15 p.m. (EDT) on Galaxy 4R/C20 and K16. The video includes
sound bites from the CEO's of both companies, as well as b-roll of Valero's
refineries and Ultramar Diamond Shamrock's retail stores. For satellite
assistance, call (210) 377-8666.
THE FOLLOWING IS A TRANSACTION SUMMARY DISSEMINATED BY VALERO ENERGY CORPORATION
AND ULTRAMAR DIAMOND SHAMROCK ON MAY 7, 2001 WITH THE FOREGOING PRESS RELEASE:
[VALERO ENERGY CORPORATION LOGO] [ULTRAMAR DIAMOND SHAMROCK LOGO]
Bill Greehey Jean Gaulin
Chairman and CEO Chairman and CEO
THE RISE OF A REFINING
& MARKETING MAJOR
MAY 2001
- ---------------------------------------------------
BILL GREEHEY
CHAIRMAN AND CEO
VALERO ENERGY CORPORATION
TRANSACTION SUMMARY
- ---------------------------------------------------
- VALERO TO ACQUIRE UDS IN OVER $6 BILLION TRANSACTION
- EXCHANGE RATIO FIXED AT 1.228 SHARES OF VALERO STOCK FOR EACH SHARE OF UDS
STOCK - REPRESENTS 30% PREMIUM BASED ON TRAILING 10 DAYS AVERAGE ENDING
APRIL 26
- TO BE PAID -
+ 50% IN VALERO STOCK
+ 50% IN CASH FIXED AT $55 PER SHARE OF UDS STOCK
- TRANSACTION SIGNIFICANTLY ACCRETIVE TO VALERO'S EPS AND
CFPS
- - CLOSING BY YEAR END 2001
STRATEGIC RATIONALE
- ---------------------------------------------------
- SIZE AND SCOPE CREATES THE PREMIER U.S. REFINER &
MARKETER
- SUPERIOR ASSET PORTFOLIO
+ QUALITY UDS MANAGEMENT TEAM AND WORKFORCE
- ENHANCED EARNINGS STABILITY THROUGH TOP-QUALITY,
NATIONALLY RECOGNIZED RETAIL OPERATIONS
- ESTIMATED SYNERGIES OF AT LEAST $200 MILLION ANNUALLY
- SIGNIFICANTLY INCREASED SIZE AND LIQUIDITY -- MULTIPLE
--------------
EXPANSION
-----------------
+ LIKELY INCLUSION IN S&P 500
- - POSITIONS COMPANY FOR FURTHER GROWTH
THE COMBINED COMPANY
- ---------------------------------------------------
- BILL GREEHEY TO REMAIN CHAIRMAN AND CEO OF
VALERO
- VALERO BOARD TO EXPAND TO 13 MEMBERS WITH
ADDITION OF 4 UDS DIRECTORS
-------------------------------------------------------------
| |
| HEADQUARTERS IN SAN ANTONIO
| |
| 23,000 EMPLOYEES
| |
| 13 REFINERIES
| |
| 5,350 RETAIL OUTLETS
| |
| 4,600 MILES OF CRUDE & PRODUCT PIPELINES
| |
| $32 BILLION IN REVENUES
| |
| $10 BILLION IN TOTAL ASSETS
| |
-------------------------------------------------------------
THE NEW U.S. REFINING MAJOR
- ---------------------------------------------------
[BAR GRAPH DEPICTING THE FOLLOWING DATA:
Capacity
Company (bpd)
- --------------- ---------
ExxonMobil 1,955
Valero/UDS 1,865
Phillips/Tosco 1,710
BP 1,670
Chevron/Texaco 1,520
Valero 1,015
MAP 935
UDS 850
Shell 825
Sunoco 730
El Paso 540
Conoco 530
Premcor 480
Tesoro 275
Source: Oil & Gas Journal and company reports
WITH MAJOR MARKETING PRESENCE
- ---------------------------------------------------
Company
Operated
Rank/Company U.S. Sites
---------------------------------------------------------------
1. Phillips Petroleum 2,350
2. Speedway SuperAmerica (MAP) 2,200
3. The Southland Corp. 2,050
-------------------------------------------------------------------
| 4. VALERO ENERGY CORPORATION 1,735 |
-------------------------------------------------------------------
5. BP/Amoco/Arco 1,635
6. The Pantry Inc. 1,200
7. ExxonMobil 1,075
8. Equilon/Motiva 975
9. Clark 900
10. Cumberland Farms, Inc. 725
Source: 2000 C-Store & Pet. Mktg. Industry Review, 1999 data adjusted
by UDS management
- --------------------------------------------------
JEAN GAULIN
CHAIRMAN AND CEO
ULTRAMAR DIAMOND SHAMROCK
GEOGRAPHIC DIVERSITY AND COMPLEXITY ...
- ---------------------------------------------------
[MAP OF THE UNITED STATES OF AMERICA AND SOUTHEASTERN CANADA DEMONSTRATING
VALERO'S RETAIL MARKETING PRESENCE IN THE STATE OF CALIFORNIA AND THE FOLLOWING
INFORMATION RELATED TO VALERO'S REFINERIES:
Benicia, California
- 165,000 bpd capacity
- 14.5 complexity
Corpus Christi, Texas
- 225,000 bpd capacity
- 23.8 complexity
Texas City, Texas
- 230,000 bpd capacity
- 9.2 complexity
Houston, Texas
- 120,000 bpd capacity
- 9.9 complexity
Krotz Springs, Louisiana
- 85,000 bpd capacity
- 5.8 complexity
Paulsboro, New Jersey
- 185,000 bpd capacity
- 12.1 complexity
.. ENHANCED BY UDS' QUALITY ASSETS
- ---------------------------------------------------
[MAP OF THE UNITED STATES OF AMERICA AND SOUTHEASTERN CANADA DEMONSTRATING
VALERO AND UDS COMBINED RETAIL MARKETING PRESENCE, INFORMATION RELATED TO VALERO
AND UDS REFINERIES, AND LOCATION OF TERMINALS, CRUDE PIPELINES, PRODUCTS
PIPELINES, INDUSTRY PIPELINES AND ETHYLENE/PROPYLENE PIPELINES:
COMBINED MARKETING PRESENCE IN THE FOLLOWING STATES AND PROVINCES:
United States: Canada (Southeastern region only):
- -------------- ----------------------------------
Arizona New Brunswick
Arkansas Ontario
California Quebec
Colorado
Iowa
Kansas
Louisiana
Maine
Massachusetts
Minnesota
Missouri
Nebraska
New Hampshire
New Mexico
Oklahoma
Texas
Vermont
Wyoming
REFINERIES:
Valero: UDS:
- ------- ------
Benicia, California Golden Eagle, California
- 165,000 bpd capacity - 168,000 bpd capacity
- 14.5 complexity - 11.5 complexity
Corpus Christi, Texas Wilmington, California
- 225,000 bpd capacity - 135,000 bpd capacity
- 23.8 complexity - 16.8 complexity
Texas City, Texas McKee, Texas
- 230,000 bpd capacity - 170,000 bpd capacity
- 9.2 complexity - 8.0 complexity
Houston, Texas Three Rivers, Texas
- 120,000 bpd capacity - 98,000 bpd capacity
- 9.9 complexity - 10.2 complexity
Krotz Springs, Louisiana Ardmore, Oklahoma
- 85,000 bpd capacity - 85,000 bpd capacity
- 5.8 complexity - 9.5 complexity
Paulsboro, New Jersey Denver, Colorado
- 185,000 bpd capacity - 27,000 bpd capacity
- 12.1 complexity - 6.0 complexity
Quebec, Canada
- 167,000 bpd capacity
- 7.2 complexity
BETTER EXPOSURE TO THE RIGHT MARKETS
- ---------------------------------------------------
[BAR GRAPH DEPICTING THE FOLLOWING DATA:
Composite Average Refining Spreads*
($/BBL)
------------------------------------------------
Year Valero Before Valero After
- ------- ------------- ------------
1993 4.30 6.10
1994 3.84 5.10
1995 3.58 4.69
1996 4.06 5.41
1997 4.43 5.78
1998 3.62 4.79
1999 3.27 4.79
2000 6.27 8.28
2001 7.72 9.81
* 5-3-2 refining margins (5 parts crude oil, 3 parts gasoline, 2 parts
distillate)
ENHANCING THE STABILITY OF EARNINGS
- ---------------------------------------------------
[LINE GRAPH DEPICTING THE FOLLOWING DATA:
3-Month Rolling Average
Gulf Coast UDS Mid-Continent
Refining Spreads Retail Fuel Margins
Year ($/BBL) (CENTS/GAL)
- ---- ---------------- -----------------------
Mar 1997 3.4 13.3
Apr 1997 3.8 13.4
May 1997 3.7 13.2
Jun 1997 3.6 13.7
Jul 1997 3.5 13.9
Aug 1997 4.1 12.9
Sep 1997 4.2 12.3
Oct 1997 3.6 11.9
Nov 1997 2.6 11.7
Dec 1997 2.3 10.8
Jan 1998 2.5 12
Feb 1998 2.6 12.8
Mar 1998 2.6 14
Apr 1998 2.9 13
May 1998 3.4 12.4
Jun 1998 3.9 12.6
Jul 1998 3.6 13.3
Aug 1998 2.9 14.9
Sep 1998 2.3 15.8
Oct 1998 2.3 15
Nov 1998 2.2 15.2
Dec 1998 1.9 15.6
Jan 1999 1.3 15.5
Feb 1999 1.1 13.5
Mar 1999 1.4 10.8
Apr 1999 1.8 10
May 1999 2 10.7
Jun 1999 1.8 12.1
Jul 1999 1.8 11.8
Aug 1999 2.5 10.9
Sep 1999 2.8 10
Oct 1999 2.6 11.4
Nov 1999 2.3 11.7
Dec 1999 2 10.9
Jan 2000 2.2 9.6
Feb 2000 2.8 7.8
Mar 2000 3.7 7.5
Apr 2000 4.5 7.9
May 2000 5.1 8.9
Jun 2000 5.5 8.9
Jul 2000 5.3 10
Aug 2000 4.9 10.7
Sep 2000 4.8 10.7
Oct 2000 5 8.8
Nov 2000 4.6 7.4
Dec 2000 4.1 8.4
Jan 2001 4.6 8.4
Feb 2001 5 8.6
Mar 2001 5.2 7.3
Apr 2001 6.1 6.7
- ---> Retail fuel margins tend to be counter-cyclical to refining spreads
QUALITY RETAIL PRESENCE
- ---------------------------------------------------
[UDS SERVICES STATION GRAPHIC]
- - SOME 2,000 COMPANY-OPERATED SITES AND OVER
2,500 DEALERS/JOBBERS AND TRUCK RACK FACILITIES
IN 18 U.S. STATES AND SIX CANADIAN PROVINCES
- LARGEST COMPANY-OWNED RETAILER IN TEXAS,
OKLAHOMA, COLORADO AND NEW MEXICO
- ONE OF THE LARGEST HOME HEATING OIL
BUSINESSES IN NORTH AMERICA
- OVER $1.2 BILLION IN ANNUAL MERCHANDISE
SALES AND GROWING
[VALERO SERVICES STATION GRAPHIC]
- - 80 VALERO BRANDED SITES AND 260 EXXON-
BRANDED LOCATIONS IN THE CALIFORNIA MARKET
- - 30% INCREASE IN VOLUMES SINCE ACQUISITION
IMPROVING OPERATIONS ...
- ---------------------------------------------------
... THROUGH HIGH RETURN PROJECTS ADDING OVER $175 MILLION ANNUALLY
- - RESTART OF NO. 3 CRUDE UNIT AT THE GOLDEN EAGLE REFINERY
- - INCREASING CARB GASOLINE AND DIESEL PRODUCTION AT BOTH
GOLDEN EAGLE AND WILMINGTON TO NEARLY 90%
- - EXPANSION OF QUEBEC REFINERY BY 40,000 BPD LATER THIS YEAR
- - ENHANCING SOUR CRUDE AND CLEAN PRODUCT CAPABILITIES AT
MCKEE, THREE RIVERS AND ARDMORE
- - COST REDUCTION AND RE-IMAGING PROGRAMS IN PROGRESS
THROUGHOUT THE RETAIL NETWORK
- - EXPANDING CRUDE OIL AND PRODUCT LOGISTICS THROUGHOUT MID-
CONTINENT
- --------------------------------------------------
BILL GREEHEY
CHAIRMAN AND CEO
VALERO ENERGY CORPORATION
BETTER REFINERIES, BETTER PRODUCTS
- ---------------------------------------------------
- - 2000 UPGRADES AT TEXAS CITY, BENICIA AND PAULSBORO
TO CONTRIBUTE $40 TO $50 MILLION ANNUALLY
- - 1ST QTR. 2001 PROJECTS - $50 MILLION ANNUAL BENEFIT
- BENICIA HYDROCRACKER - INCREASED CARB PRODUCTION
- HOUSTON FCC AND PLANTWIDE TURNAROUND - UP TO 100%
SOUR CRUDE AND LIGHT PRODUCT YIELDS
- TEXAS CITY CRUDE UNIT UPGRADE - INCREASED SOUR CRUDE
CAPACITY AND LIGHT PRODUCT YIELDS
----> MORE HIGH RETURN
PROJECTS TO COME
ANTICIPATED SYNERGIES
- ---------------------------------------------------
($ IN MILLIONS)
YEAR 1 YEAR 2+
-------- ---------
CRUDE SOURCING & LOGISTICS $ 75 $ 80
MARKETING 60 75
ADMINISTRATIVE, PROCUREMENT &
BEST PRACTICES 55 85
---------- -----------
TOTAL $190 $240
- ----> SIGNIFICANT UPSIDE TO CURRENT ESTIMATES
RIGHT DEAL AT THE RIGHT TIME
- ---------------------------------------------------
- - INDUSTRY FUNDAMENTALS REMAIN POSITIVE
- - INVENTORIES FOR LIGHT PRODUCTS SHOULD REMAIN AT LOW END OF
HISTORIC RANGE
- HIGH NATURAL GAS PRICES IMPACT INVENTORIES OF BOTH GASOLINE
AND DISTILLATE
- CONTINUED HEALTHY DEMAND FOR REFINED PRODUCTS
- TIGHT US REFINING CAPACITY; LIMITED CAPACITY GROWTH
- WORLDWIDE MOVEMENT TOWARD CLEANER BURNING FUELS
ACCELERATING
- - POSITIVE SOUR CRUDE FUNDAMENTALS
----> PERFECT CYCLE TO CONTINUE
COMPELLING FINANCIAL IMPACT
- ---------------------------------------------------
2001 Forward Curve Case (1)
------------------------------------------
Valero UDS Pro Forma
------------------------------------------
EBITDA $1,301 $1,413 $2,714
Net Income $626 $579 $1,263
Earnings Per Share $9.73 $7.86 $11.46
Accretion ($) -- -- $1.73
Cash Flow Per Share $15.43 $14.84 $17.19
Accretion ($) -- -- $1.76
Long Term Debt $1,041 $1,306 $4,104
Debt-to-capitalization 31.8% 44.0% 45.6%
Fixed charge coverage 11.1x 8.6x 6.2x
* Pro Forma includes acquisition financing, synergies and purchase accounting
adjustments
(1) Based on 2001 forward curve prices as of April 16, 2001
BASE EARNINGS RAISED SUBSTANTIALLY
- ---------------------------------------------------
ESTIMATED EPS CASES
- ---------------------------------
2002 5 year Avg.
2001 First Call Case
--------- ---------- -----------
Valero $9.73 $4.70 $4.84
Pro Forma $11.46 $7.08 $7.85
Accretion 18% 51% 62%
+ ACCRETION INCREASES AS REFINING MARGINS DECLINE
+ DRAMATIC REDUCTION IN VOLATILITY
ESTIMATED TRANSACTION TIMETABLE
- ---------------------------------------------------
MAY 7-16 ROADSHOW
MAY 31 UDS & VLO TO FILE HSR WITH FTC
JUNE 4-7 FILE REGISTRATION AND PROXY STATEMENTS
WITH SEC
SEPTEMBER 6 STOCKHOLDER MEETINGS OF VALERO AND UDS
TO APPROVE TRANSACTION
OCTOBER 31 CLOSING
A NEW "MAJOR" POSITIONED FOR GROWTH
- ---------------------------------------------------
- - THE ONLY "MAJOR" U.S. INDEPENDENT REFINER AND MARKETER
- SECOND LARGEST U.S. REFINER, INCLUDING THE MAJORS
- CLEAR SEPARATION FROM INDEPENDENT REFINERS
- - POSITIONED TO CAPITALIZE ON THE FUTURE OF THE R&M INDUSTRY
- - MAINTAINING HIGHEST LEVERAGE TO QUALITY REFINING MARGINS
WITH GEOGRAPHICALLY DIVERSE AND RELIABLE OPERATIONS
- - HIGH LEVERAGE TO STABILIZING RETAIL MARGINS AND GROWING
SALES VOLUMES
- - PROVEN TRACK RECORD OF SUCCESSFULLY INTEGRATING
ACQUISITIONS
- - INCREASED SIZE AND FINANCIAL CAPACITY PROVIDES SIGNIFICANT
OPPORTUNITIES FOR FURTHER GROWTH
[LETTER TO NON-SAN ANTONIO EMPLOYEES]
Dear UDS Employee:
I am pleased to announce that we have accepted an exciting business opportunity.
We are joining forces with Valero Energy Corporation to create the premier
refining and marketing company in the nation.
Our combined companies will have just under 2 million barrels per day (BPD) of
refining capacity, which will make us the largest independent refining company
in the U.S. - second only to ExxonMobil in terms of total refining capacity. The
new organization will have combined revenues of $32 billion, $10 billion in
total assets and a market capitalization of more than $6.1 billion. Plus, based
on combined revenues, it should be listed around 49th among the Fortune 500. By
combining our tremendous assets, we will achieve operational and business
synergies of at least $200 million annually. And, the company will have the
highest earnings leverage to strong refining fundamentals, but will also have
our strong retail operations to stabilize earnings.
It's not often that two major Fortune 500 companies from the same city could
accomplish such an exceptional partnership. By combining our resources with
Valero, we will have a stronger market presence, become more attractive to
investors and be well positioned for even further growth and success. And, by
pooling talents from both companies, our combined organization will have a much
stronger management team and workforce.
Most importantly, the merger will provide several benefits and opportunities for
UDS employees:
o The opportunity to be a part of a bigger, stronger organization; o Comparable
pay and benefits; o More opportunities for career advancement and development; o
And a commitment that virtually all employees will be retained.
It is important to stress that employees from both companies are critical to the
new organization's ongoing success. Valero has a great track record of acquiring
assets while successfully maintaining, integrating and even adding employees.
And like UDS, Valero has a strong reputation as a company committed to the needs
of its employees and communities, ranking among Fortune Magazine's "100 Best
Companies to Work for in America" for the last two years.
Between now and closing, we will work actively with Valero, looking for
opportunities to integrate the workforces, and we'll hold open positions
(wherever feasible) to create a large pool of jobs to fill after the transaction
closes. Both companies will also implement an attractive, voluntary early
retirement program for interested employees.
We expect this transaction to be complete during the fourth quarter 2001. Over
the next few weeks, we'll be providing you with information, updates and
opportunities to ask questions. Additionally, the company's Intranet site,
Ultrarock, will feature continuous updates.
At 9 a.m. today, we invite you to view the live webcast of the analyst meeting
discussing this announcement via our corporate website at www.udscorp.com, click
on the "Investor Relations" section and select the "Live Webcast" link.
Bill Greehey will be the Chairman of the Board and CEO of the new Valero, and
four UDS directors will join the new Valero board of directors. I will continue
to run UDS until the closing, and I will work with Bill on the organization of
the new company. I will then retire from UDS and step down from the board of
directors.
Thank you, and I look forward to working with you in the coming months to make
this tremendous opportunity a reality.
Sincerely,
Jean Gaulin
Chairman, President and CEO
Ultramar Diamond Shamrock Corporation
[Q and A]
Questions & Answers
1. Why is the Company doing this?
A. To become more attractive to investors in fulfilling our vision:
o Being as attractive to investors as possible is the goal of any
organization.
o This transaction offers a significant premium to UDS shareholders and
approximately a 40% participation in the combined
companies.
o Better liquidity for shareholders due to size.
o Valero's stock is the best conduit to increase shareholder value
due to its current price/earnings multiplier, which we expect to
get even better.
o Our industry's environment requires that we continue to grow and
consolidate operations to be competitive and to serve our
customers more efficiently.
o Geographic diversity, size and growth opportunities in strategically
important locations.
o UDS brings with it a strong marketing and logistics group that
Valero does not currently have for additional operational
diversity.
B. Great for Employees:
o Opportunity to be a part of a larger organization that draws on
the strength of both companies. The new organization will be by
far the largest independent refining and marketing company in the
country as well as the 2nd largest refiner in the country.
o Virtually all employees will be retained. Any duplication in
jobs/services will be handled through hiring freezes and a
voluntary early retirement package.
o Many employees will find greater opportunities for diverse experiences and
advancement o Similar cultures focused on health, safety and environment.
Continued commitment to the community.
C. Great for Community:
o Headquarters stays in San Antonio; virtually all employees will be retained.
o Continued commitment and leadership in the community as well as dedication to
charitable giving and community service. o Similar cultures focused on health,
safety and environment. Continued commitment to the community.
2. How much will Valero pay for UDS?
$27.50 in cash plus 0.614 VLO closing share price.
3. When will the transaction be finalized?
We expect the transaction will be final by the 4th Quarter of 2001 - after
the receipt of shareholder approvals from both companies and all regulatory
approvals.
4. Do you expect any roadblocks?
We do not foresee any conditions that would prevent this transaction from
proceeding. The Federal Trade Commission and various states will review the
agreement, but we are optimistic that their review will not have a major
impact on the transaction. We believe consumers will benefit from our
high-volume, low-price strategy and the independents will be better served.
5. How many employees will lose their jobs?
Virtually all employees will be retained. The synergies of this merger are
business and operational in nature. The management team responsible for
developing an organizational plan and determining staffing requirements is
committed to using a hiring freeze and a voluntary early retirement program
to ensure that virtually all employees will have a place in the new
organization.
6. How should we handle communication to the public, company representatives,
and others? During the formation of the new organization, UDS is still
competing with Valero and all information exchanged must conform with legal
requirements restricting exchange of competitive information. Please
consult with the legal department if you have any questions about
information to be exchanged with Valero. All communication with the
public, the media, or others is to be handled through the Public Relations,
Investor Relations, or the Legal Department.
7. Will my benefits or pay structure change in anticipation of the new organi-
zation?
We anticipate it will take 6-9 months to complete formation of the combined
organization. There will be no changes in benefits or compensation related
to this transaction prior to closing and comparable programs going forward.
8. Will the new organization count my years of service with UDS?
Employees will receive credit for all prior service recognized by UDS.
9. How will employee communications be handled?
Throughout the transaction, employees will be kept informed including:
press releases, employee meetings and communication via email. We will use
the Leadership Council to help coordinate communications and get answers to
your questions. Additionally, a special page has/will be developed on
Ultrarock to allow employees to read the latest news and submit questions
anonymously.
10. Who can I talk to if I have questions and concerns?
We encourage you to talk with your supervisor/manager, or your union
representative, about any questions or concerns you have. You may also
talk with your Human Resources Representative. We will also set up a site
to receive and respond to questions. Questions and answers will also be
published on the Intranet.
11. Since both organizations have new headquarters campuses in San Antonio,
where will the corporate offices for the combined organization be located?
We anticipate both offices will be used.
12. You say virtually all employees will be retained, what synergies is the
combined company anticipating that will make this such an attractive deal
to the investors?
While historically our acquisitions have relied on cost-cutting synergies,
this merger creates tremendous value for the shareholder based on
liquidity, multiplier expansion and diversity geographically and
operationally. We do anticipate tremendous EBIT improvements from
operations through our combined purchasing power and best practices.
13. After such a profitable year, why aren't we buying Valero?
The organizations have decided to combine in order to better compete in
our industry. Valero's stock has historically been valued better by the
investors and offered a better value to all shareholders.
14. What happens to Jean and our Management Team?
Jean will retire after closing and Bill Greehey will be the Chairman & CEO
of the combined organization. We anticipate the Senior Management Team
will be selected from both organizations. But again, employees from each
organization are on an equal footing and it is the combined organization
that will offer a better value to all stakeholders than each corporation
individually.
15. What is the name of the combined company?
The Corporate name will be Valero Energy Corporation.
16. Whose stock will be traded after this transaction is complete?
The stock will be traded under the Valero symbol of VLO.
17. When will employees be able to meet Bill Greehey?
On May 17 and 18, Bill Greehey will be at UDS's corporate headquarters and
together he and Jean plan to meet with employees. He will be able to answer
some of your concerns, but the details have not yet all been finalized.
Visits to other sites will be made over the next few weeks.
18. How will this merger affect me personally?
Because we have just begun to work on the details to the merger, we do
not know your personal situation yet. We will get information to you as
soon as possible. There will be some changes due to the formation of the
new organization, and employees' jobs may be affected. Again, Valero has
made a commitment to retain virtually all employees.
19. Will there be a severance package/program available?
Although few, if any lay-offs are expected, to reassure employees and
minimize anxiety, an enhanced severance program has been developed. It
will consist of severance pay and benefits, outplacement assistance, and
will provide for access to the employee assistance plan (EAP) and other
stress management aids. The EAP will also be available for employees and
their families. Additional details will be provided shortly.
20. How can we possibly take on another major task with all of the other
projects we have going?
Our focus must be to continue to perform our job well. Please try to stay
focused on your job. Although from time to time you may be asked for
information or to otherwise participate in the transition process, it is
unlikely that such requests will require a significant portion of most
employees' time.
21. Are we still going to receive our merit increases?
Business will continue as normal. We anticipate no change in the annual
review process.
22. When will we know whether we get to keep our jobs or if they will be
eliminated?
Again, Valero is committed to retaining virtually all employees. We do
not know the exact date the closing will occur, although we expect it
will be in the 4th quarter. We have not yet estimated the length of a
post-closing transition period. However, organizational changes will be
announced in a timely fashion.
23. How are we going to deal with this hiring freeze?
We will continue to monitor the situation and we will continue to use
outside resources as necessary.
24. What will happen with the PPP, AIP and other bonus programs?
These programs will continue. The goal is to continue with our profit
improvement strategies. If we meet the goals established, the bonus
programs will pay out as scheduled.
25. Will this transaction have any effect on the Canadian employees and
operations?
This transaction will not have a direct impact on UDS's Canadian
operations. However, it will make them part of a bigger company with a
stronger parent, a stronger balance sheet and more opportunities for
employees.
26. Will there be an opportunity for promotions and/or increased pay/
benefits because of the additional workload/responsibility?
It's too early to predict what precise opportunities will be available.
27. What are your plans regarding brands?
The strongest brand will be selected on a market-by-market basis with the
intention of optimizing the historical strengths and loyal customer base
while minimizing rebranding costs.
28. If my job is eliminated, will I be considered for other jobs ?
Yes.
29. How will I know what other jobs may be available?
Jobs will be posted and communicated as in the past.
30. What are the metrics of the new Valero operations?
It will operate 13 refineries in North America with a total combined
throughput capacity of over 1.8 million barrels per day. The new
organization will operate over 5000 retail outlets in 17 states and six
provinces in eastern Canada. It also will operate a crude and petroleum
products transportation system consisting of over 4,600 miles of
pipelines, a unit train, and a number of strategically located product
terminals.
[LETTER TO SAN ANTONIO EMPLOYEES]
Dear UDS Employee:
I am pleased to announce that we have accepted an exciting business opportunity.
We are joining forces with Valero Energy Corporation to create the premier
refining and marketing company in the nation.
Our combined companies will have just under 2 million barrels per day (BPD) of
refining capacity, which will make us the largest independent refining company
in the U.S. - second only to ExxonMobil in terms of total refining capacity. The
new organization will have combined revenues of $32 billion, $10 billion in
total assets and a market capitalization of more than $6.1 billion. Plus, based
on combined revenues, it should be listed around 49th among the Fortune 500. By
combining our tremendous assets, we will achieve operational and business
synergies of at least $200 million annually. And, the company will have the
highest earnings leverage to strong refining fundamentals, but will also have
our strong retail operations to stabilize earnings.
It's not often that two major Fortune 500 companies from the same city could
accomplish such an exceptional partnership. By combining our resources with
Valero, we will have a stronger market presence, become more attractive to
investors and be well positioned for even further growth and success. And, by
pooling talents from both companies, our combined organization will have a much
stronger management team and workforce.
Most importantly, the merger will provide several benefits and opportunities for
UDS employees:
o The opportunity to be a part of a bigger, stronger organization; o Comparable
pay and benefits; o More opportunities for career advancement and development; o
And a commitment that virtually all employees will be retained.
It is important to stress that employees from both companies are critical to the
new organization's ongoing success. Valero has a great track record of acquiring
assets while successfully maintaining, integrating and even adding employees.
And like UDS, Valero has a strong reputation as a company committed to the needs
of its employees and communities, ranking among Fortune Magazine's "100 Best
Companies to Work for in America" for the last two years.
Between now and closing, we will work actively with Valero, looking for
opportunities to integrate the workforces, and we'll hold open positions
(wherever feasible) to create a large pool of jobs to fill after the transaction
closes. Both companies will also implement an attractive, voluntary early
retirement program for interested employees.
We expect this transaction to be complete during the fourth quarter 2001. Over
the next few weeks, we'll be providing you with information, updates and
opportunities to ask questions. Additionally, the company's Intranet site,
Ultrarock, will feature continuous updates.
Today, we invite you to participate in several events as follows:
1. Meeting with company executives at 8 a.m. OR 10:30 a.m. in the cafeteria;
2. At 9 a.m., viewing the live webcast of the analyst meeting discussing this
announcement via our corporate website at www.udscorp.com, click on the
"Investor Relations" section and select the "Live Webcast" link. This will
also be broadcast in the cafeteria.
Bill Greehey will be the Chairman of the Board and CEO of the new Valero, and
four UDS directors will join the new Valero board of directors. I will continue
to run UDS until the closing, and I will work with Bill on the organization of
the new company. I will then retire from UDS and step down from the board of
directors.
Thank you, and I look forward to working with you in the coming months to make
this tremendous opportunity a reality.
Sincerely,
Jean Gaulin
Chairman, President and CEO
Ultramar Diamond Shamrock