A Texas oil company said Monday it is buying Scottsdale-based gas refiner and retailer Giant Industries for an estimated $1.5 billion in cash and debt assumption.
El Paso-based Western Refining is offering Giant shareholders $83 per share, a premium of more than 15 percent over Friday’s closing price.
Shares of Giant surged 14.5 percent Monday to close at $82.22. Western Refining shares slipped 3.3 percent to $25.14.
The merger will create a publicly traded refiner and marketer with a combined annual revenue of $7.75 billion, earnings topping $551 million and a total crude-oil capacity throughput of 216,000 barrels per day.
Western Refining CEO Paul Foster said Giant’s assets will allow the Texas company to diversify geographically and vertically.
Western’s single refinery in El Paso processes 117,000 gallons of crude oil per day. Giant’s two refineries in New Mexico and its largest refinery in Yorktown, Va., will boost that capacity by 84 percent, Foster said.
“And Giant’s retail operation will provide Western with the opportunity to integrate vertically,” he said. “Giant is a leader in the convenience store business.” Giant also adds two wholesale gas distributors — Phoenix Fuel Co. and Dial Oil Co. — a crude-oil pipeline, and a fleet of truck transports to the merged pot.
The proposed purchase has been approved by the boards of both companies. Giant shareholders and federal regulators still have to OK the deal. It is expected to close in the fourth quarter.
Giant isn’t anticipating any hurdles, said company spokesman Mark Cox.
“We think this is a good transaction,” he said. “It is a good deal for shareholders. The two companies have a good fit.”
And there is very little market overlap to worry regulators, Cox said.
Western Refining chief financial officer Gary Dalke said the company will keep an operation in Scottsdale, but will “consolidate overlapping functions.”
Western expects to save $20 million annually in operating efficiencies, about 45 percent of it achieved by consolidation, Dalke said.
Giant has about 125 employees at its corporate offices, handling all administrative functions such as accounting, human resources, retail management, refining management and corporate officers, Cox said. The company employs about 3,000 nationwide at its refining, retail and distribution operations, including “a couple hundred” people at Valley-based subsidiary Phoenix Fuel, he said.
Cox said he didn’t not know how many jobs would move or be scrubbed by the consolidation.
Western Refining said in a statement announcing the acquisition that, “Significant work force reductions are not expected.”
The company is financing the Giant acquisition with a $2 billion loan and credit line from Bank of America and its own cash stockpile of $250 million, Dalke said.
Foster said there are break-up fees, but he did not divulge them. He said he did not expect competing offers to woo Giant from the deal.
No date has been set for the Giant shareholders vote, Cox said.
Western Refining was founded in 1993.
Giant was born 45 years ago when founder Jim Acridge and a friend leased a Phoenix service station with $1,500 of borrowed money. They used the slogan “Big on Service” and the image of a friendly giant. Eventually Acridge bought the friend out and developed a stable of service stations throughout Arizona.
In 1973, during the Arab oil embargo, Acridge and other independent service station owners were cut out by the oil giants. Acridge decided he needed to have his own supply in order to prevent another such occurrence. He built his first refinery in New Mexico.
The company grew vertically, adding retail operations, more refineries and the distribution network to get the product from the refineries to the retailers. In 2002, founder and then-CEO Acridge was forced out when he made some unprofitable real estate purchases partly financed through loans from Giant that left him bankrupt and in court battling his own company.