EXHIBIT 99.1
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 (Inv. Rel.)
(210) 370-2139 (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. (NYSE:UDS), 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.
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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.
Statements contained in this press release that state the Company's or
management's expectations or predictions of the future are forward-looking
statements intended to be covered by the safe harbor provisions of the
Securities Act of 1933 and the Securities Exchange Act of 1934. It is important
to note that the Company's actual results could differ materially from those
projected in such forward-looking statements.
Investors and security holders are urged to read the joint proxy
statement/prospectus that will be sent to Valero and UDS stockholders regarding
the proposed merger, 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, when available, free of charge
from Valero and UDS. Stockholders should 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.