13 diciembre 2006

Western Refining to Buy Giant Industries for $1.23 Billion

Monday August 28

Western Refining Inc.'s planned takeover of Giant Industries provided the latest example of the refining industry's ongoing consolidation, industry analysts said Monday.

El Paso, Texas-based Western Refining on Monday said it would buy Giant Industries for $1.23 billion in cash, an offer worth $83 a share. Giant shares surged $10.06, or 14 percent, to $81.85 in afternoon trading on the New York Stock Exchange.

Shares of Western Refining dipped 60 cents, or 2.3 percent, to $25.39 on the Big Board.

The refining sector has for years been growth-constricted by the high cost of building new refining capacity and hardening environmental regulations, analysts say. No new refinery has been constructed in the U.S. since the mid-1970s. To grow, refiners have sought to draw smaller rivals into their fold.

"The cost of new construction is $30,000 per daily barrel, and it's going to take a good five to seven years to get a new refinery online," said Caris & Co. analyst Ann Kohler. "Western bought Giant for $11,000 per daily barrel, and the deal will close in the fourth quarter. If you are a refiner and are looking to expand your capacity, it's far cheaper and quicker to purchase your assets on the exchange."

The Western Refining deal is the latest combination in the industry.

Earlier this month, Lyondell Chemical Co. bought out Citgo Petroleum Corp.'s stake in a joint refining venture. The $2.1 billion transaction gave Lyondell sole control over the Houston refinery. Valero Energy Corp., the nation's largest independent refiner, purchased Premcor for $8 billion last year in a deal that added four refineries to the company's assets.

In afternoon trading, shares of Valero Energy dropped $1.80, or 2.9 percent, to $60.60 on the NYSE, while Lyondell shares rose 11 cents to $25.77.

"The whole industry is consolidating, whether it's refining or market or oil production," said Oppenheimer & Co. analyst Fadel Gheit. In the refining sector, smaller companies have found added appeal as potential takeover targets.

"The niche players are getting huge run-ups in their stock price," said Gheit. "It's like beach-front properties and nearly all the lots are taken."

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