VALERO L.P. TO ACQUIRE KANEB SERVICES LLC
AND KANEB PIPE LINE PARTNERS, L.P.
NEW PARTNERSHIP TO BE LARGEST TERMINAL OPERATOR AND SECOND LARGEST
PETROLEUM LIQUIDS PIPELINE OPERATOR IN NATION
SAN ANTONIO, November 1, 2004 -- Valero L.P. (NYSE: VLI), Kaneb Services LLC
(NYSE: KSL) and Kaneb Pipe Line Partners, L.P. (NYSE: KPP) today announced that
they have executed definitive agreements to merge Valero L.P. and Kaneb Partners
to become the largest terminal operator and second largest petroleum liquids
pipeline operator in the United States. As part of the transaction, Valero L.P.
will also acquire all of Kaneb Services' equity securities for cash. The general
partner of the combined partnership will continue to be owned by affiliates of
Valero Energy Corporation (NYSE: VLO). Kaneb Services and Kaneb Partners will
become wholly owned subsidiaries of Valero L.P.
The assets of the combined partnership, which will retain the name Valero L.P.,
will include approximately 9,700 miles of pipeline comprised of approximately
6,900 miles of refined product pipelines, 800 miles of crude oil pipelines and a
2,000-mile anhydrous ammonia pipeline. The combined partnership will also own
101 terminal facilities located in 30 states, Canada, Mexico, the Netherlands
Antilles, Australia, New Zealand and the United Kingdom, as well as four crude
oil storage tank facilities. The combined system will have approximately 85
million barrels of storage capacity.
"We're excited to bring together two of the best pipeline and terminal operators
in the country to form one of the premier mid-stream logistics partnerships in
the world," said Curt Anastasio, President and Chief Executive Officer of Valero
L.P. "The combined entity will be in a much better strategic position with
stronger, more diversified operations, increased earnings stability and a
terrific platform for future growth. Our relationship with our general partner,
Valero Energy, will continue to be of significant benefit to Valero L.P. going
forward given that Valero Energy is the largest independent refining company in
the United States and is committed to further expanding its operations.
"This is a great transaction for our investors. Upon closing of the merger, we
intend to recommend to our board of directors an increase in the annual
distribution from $3.20 per unit to $3.42 per unit, which would represent a
nearly 7 percent increase. In addition, we expect this transaction will be
significantly accretive to cash flow and will position us well for further
distribution increases. With our combined operations, we see outstanding
opportunities to increase unitholder value through a wider array of growth
opportunities than either partnership had independently. And, we are fortunate
to be adding key members from Kaneb's high-quality management team and its
workforce, who are among the best in the industry," said Anastasio.
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The total value of the transaction is approximately $2.8 billion and is expected
to close in the first quarter of 2005. The completion of the merger is subject
to the approval of the unitholders of Valero L.P. and Kaneb Partners and the
shareholders of Kaneb Services as well as customary regulatory approvals
including those under the Hart-Scott-Rodino Antitrust Improvements Act.
Under the terms of the agreement, Valero L.P. will acquire all of the equity
securities of Kaneb Services in a fixed cash merger for $525 million, or $43.31
per share. In addition, each unitholder of Kaneb Partners will receive a number
of Valero L.P. common units based on an exchange ratio formula providing Valero
L.P. common units worth $61.50 per Kaneb Partners common unit within a specified
"collar" range of Valero L.P. common unit market prices (plus or minus five
percent of $57.25, the Valero L.P. common unit price as of October 7, 2004),
measured over a period prior to closing. Should Valero L.P.'s average per unit
price during the measurement period be below $54.39 per unit, the exchange ratio
will be fixed at 1.1307 Valero L.P. common units for each Kaneb Partners unit.
Should Valero L.P.'s average per unit price during the measurement period exceed
$60.11 per unit, the exchange ratio will be fixed at 1.0231 Valero L.P. common
units for each Kaneb Partners unit.
"This transaction will bring tremendous advantages to Kaneb investors," said
John Barnes, Chairman and Chief Executive Officer of Kaneb Services. "The
combination of the transaction's favorable exchange ratio and the premium at
which Valero L.P. units are trading represents a substantial increase in market
value for Kaneb Partners' unitholders. Kaneb Services shareholders will receive
cash that also represents a substantial premium to current market value. We have
created significant value over the years in the Kaneb companies and we believe
this transaction provides an outstanding opportunity to our investors."
"Through the additional Valero L.P. units they will receive, Kaneb Partners'
unitholders will have the opportunity to receive larger cash distributions and
participate in the outstanding growth prospects represented by the combined
partnership," said Ed Doherty, President and Chief Executive Officer of Kaneb
Pipe Line Company, Kaneb Partners' general partner.
Following the merger, Bill Greehey will remain Chairman of the Board of the
general partner and Curt Anastasio will continue to serve as President and Chief
Executive Officer of Valero L.P. The combined partnership will be headquartered
in San Antonio, Texas.
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The board of directors of Valero L.P., Kaneb Services and Kaneb Partners have
all approved the terms of the proposed transaction. Credit Suisse First Boston
and Citigroup are serving as financial advisors to Valero L.P. Raymond James and
Associates is serving as financial advisor to the special committee of the Kaneb
Services board of directors and Houlihan, Lokey, Howard and Zukin is serving as
financial advisor to the special committee of the board of the general partner
of Kaneb Partners.
Valero L.P. and Kaneb will host a conference call at 10:00 a.m. ET (9:00 a.m.
CT) today, November 1, 2004, to discuss this transaction. Anyone interested in
listening to the presentation can call 800/901-5218, passcode VALERO, or visit
the partnership's web site at www.valerolp.com. In addition, further information
about the transaction is provided in a management presentation posted to the
Valero L.P. website.
Valero L.P. owns and operates crude oil and refined product pipelines, refined
product terminals and refinery feedstock storage assets primarily in Texas, New
Mexico, Colorado, Oklahoma and California. The partnership transports refined
products from Valero Energy's refineries to established and growing markets in
the Mid-Continent, Southwest and the Texas-Mexico border region of the United
States. In addition, its pipelines, terminals and storage facilities primarily
support eight of Valero Energy's key refineries with crude oil and other
feedstocks as well as provide access to domestic and foreign crude oil sources.
For more information, visit Valero L.P.'s web site at www.valerolp.com.
Kaneb is a single business represented by two separate publicly traded entities
on the New York Stock Exchange. Kaneb's business is focused on mid-stream energy
assets -- refined petroleum product pipelines, and petroleum and specialty
liquids storage and terminaling facilities. Kaneb is a major transporter of
refined petroleum products in the Midwest and is the second largest independent
liquids terminaling company in the world. Worldwide operations include
facilities in 29 states, Canada, the Netherlands Antilles, Australia, New
Zealand and the United Kingdom. Its publicly traded entities are Kaneb Services
LLC (NYSE:KSL) and Kaneb Pipe Line Partners, L.P., (NYSE: KPP). For more
information, visit www.kaneb.com.
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INVESTOR NOTICE
Valero L.P., Kaneb Services and Kaneb Partners will file a proxy statement
and/or a joint proxy statement/prospectus and other documents with the
Securities and Exchange Commission. Investors and security holders are urged to
read carefully these documents when they become available because they will
contain important information regarding Valero L.P., Kaneb Services, Kaneb
Partners and the merger. A definitive proxy statement and/or joint proxy
statement/prospectus will be sent to security holders of Valero L.P., Kaneb
Services, and Kaneb Partners seeking their approval of the transactions
comtemplated by the merger agreements. Investors and security holders may obtain
a free copy of the proxy statement and/or joint proxy statement/prospectus (when
available) and other documents containing information about Valero L.P., Kaneb
Services, and Kaneb Partners, without charge, at the SEC's web site at
www.sec.gov. Copies of the proxy statement and/or definitive joint proxy
statement/prospectus and the SEC filings that will be incorporated by reference
in the joint proxy statement/prospectus may also be obtained free of charge by
directing a request to Kaneb Services or the respective partnerships.
Valero L.P., Kaneb Services, Kaneb Partners, and the officers and directors of
Kaneb Services and of the respective general partners of Valero L.P. and Kaneb
Partners may be deemed to be participants in the solicitation of proxies from
their security holders. Information about these persons can be found in Valero
L.P.'s, Kaneb Services', and Kaneb Partners' respective Annual Reports on Form
10-K filed with the SEC, and additional information about such persons may be
obtained from the proxy statement and/or joint proxy statement/prospectus when
available.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS - VALERO L.P.
THIS PRESS RELEASE INCLUDES FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
SECURITIES LITIGATION REFORM ACT OF 1995 REGARDING FUTURE EVENTS AND THE FUTURE
FINANCIAL PERFORMANCE OF VALERO L.P.. ALL FORWARD-LOOKING STATEMENTS ARE BASED
ON THE PARTNERSHIP'S BELIEFS AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION
CURRENTLY AVAILABLE TO THE PARTNERSHIP. THESE STATEMENTS REFLECT THE
PARTNERSHIP'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO
VARIOUS RISKS, UNCERTAINTIES AND ASSUMPTIONS. THESE RISKS, UNCERTAINTIES AND
ASSUMPTIONS ARE DISCUSSED IN VALERO L.P.'S 2003 ANNUAL REPORT ON FORM 10-K AND
SUBSEQUENT FILINGS MADE WITH THE SECURITIES AND EXCHANGE COMMISSION.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS - KANEB
CERTAIN OF KANEB'S STATEMENTS IN THIS PRESS RELEASE ARE NOT PURELY HISTORICAL,
AND AS SUCH ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. THESE INCLUDE STATEMENTS REGARDING
MANAGEMENT'S INTENTIONS, PLANS, BELIEFS, EXPECTATIONS OR PROJECTIONS OF THE
FUTURE. FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES ,INCLUDING
WITHOUT LIMITATION, THE VARIOUS RISKS INHERENT IN KANEB'S BUSINESS, AND OTHER
RISKS AND UNCERTAINTIES DETAILED FROM TIME TO TIME IN KANEB'S PERIODIC REPORTS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ONE OR MORE OF THESE FACTORS
HAVE AFFECTED, AND COULD IN THE FUTURE AFFECT, KANEB'S BUSINESS AND FINANCIAL
RESULTS IN FUTURE PERIODS, AND COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM PLANS AND PROJECTIONS. THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING
STATEMENTS MADE IN THIS DOCUMENT WILL PROVE TO BE ACCURATE, AND ISSUANCE OF SUCH
FORWARD-LOOKING STATEMENTS SHOULD NOT BE REGARDED AS A REPRESENTATION BY KANEB,
OR ANY OTHER PERSON, THAT THE OBJECTIVES AND PLANS OF KANEB WILL BE ACHIEVED.
ALL FORWARD-LOOKING STATEMENTS MADE IN THIS PRESS RELEASE ARE BASED ON
INFORMATION PRESENTLY AVAILABLE TO MANAGEMENT, AND KANEB ASSUMES NO OBLIGATION
TO UPDATE ANY FORWARD-LOOKING STATEMENTS.
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