Devon/ChevronTexaco exchangeable falls on acquisition news; GM active on management shuffles

By Sara Rosenberg

New York, April 4 - The Devon Energy/ChevronTexaco Corp. convertible exchangeables traded down during market hours as ChevronTexaco announced plans for a mammoth $18 billion acquisition of Unocal Corp.

Meanwhile, General Motors Corp.'s notes were active with some issues marginally higher and some marginally lower as the company announced a wave of management changes.

The Devon 4.9% exchangeable due 2008 into ChevronTexaco was down close to four points at 112.32 bid, 112.82 offered, while 4.95% exchangeable due 2008 was down about 3.8 points at 112.45 bid, 112.95 offered, according to a trader.

ChevronTexaco's stock closed at $56.98, down $2.33 or 3.93% on the day. Unocal's stock closed at $59.60, down $4.75 or 7.38%.

"CVX announced that they're buying Unocal. It's the rule of thumb. Acquirer's stock will always go down. People short it and buy the target stock," a sell-side source explained.

On Monday morning, ChevronTexaco announced that it would purchase Unocal in a stock and cash transaction valued at approximately $18 billion, including net debt. Unocal shareholders may choose to receive either 1.03 shares of ChevronTexaco stock or $65 in cash for each share of Unocal stock, subject to pro ration. All in all, ChevronTexaco will issue approximately 210 million shares of stock, pay approximately $4.4 billion in cash and assume estimated net debt of $1.6 billion.

ChevronTexaco expects oil-equivalent production from the combined portfolios during 2006 to average about 3 million barrels per day. Unocal's 1.75 billion barrels of oil-equivalent proved reserves would increase ChevronTexaco's reserve base as of the end of 2004 by about 15%.

ChevronTexaco expects asset sales following the close of the transaction to result in more than $2 billion in proceeds.

Annual savings from operational synergies and reduced corporate expenses are estimated at more than $325 million before tax.

The acquisition is expected to be accretive on a cash flow per-share basis and broadly neutral to earnings per share after taking into account synergies and significant additional share repurchases.

Following regulatory approval, the full integration of the two companies is expected to be completed in six months.

"Unocal is a unique independent with supermajor assets that are an excellent fit with our existing portfolio and our long-term strategies - to grow profitably in core upstream areas, build new legacy positions and commercialize our large undeveloped natural gas resource base," said Dave O'Reilly, ChevronTexaco chairman and chief executive officer, in a company news release. "It is an attractive transaction that provides value in both the near- and long-term."

ChevronTexaco is a San Ramon, Calif.-based energy company. Unocal is an El Segundo, Calif.-based natural gas and crude oil exploration and production company.

GM active on management shifts

General Motors convertibles were trading around on Monday as the company announced management changes, with the GBM issues up $0.10, or 0.54%, at $18.50, the GPM issue down $0.20, or 0.98% at $20.30 and the GXM issue up $0.02, or 0.09%, at $23.50, according to a market source.

The stock closed down $0.33, or 1.12%, at $29.05.

On Monday, the Detroit, Mich.-based automaker announced a series of managerial changes that included vice chairman Bob Lutz and group vice president Gary Cowger relinquishing their current roles at GM North America so as to be able to focus full-time on their global responsibilities: Lutz on leading GM's global product development activities and Cowger on global manufacturing and labor.

Chief executive officer Rick Wagoner will assume leadership of GM North America.

"Given the challenges we face in North America, it makes sense for me to assume control of GMNA's day-to-day operations and shorten the lines of communication and decision-making," Wagoner said, in a company news release.

"At the same time, as we look at our global business, it's clear that the two areas most critical to our future success are achieving excellence in every product we develop, and doing it with the most competitive manufacturing system. And Bob and Gary are our two executives most experienced and skilled in these key areas," Wagoner added in the release.

Ford preferreds retreat

Ford Motor Co.'s preferred convertibles were also somewhat active during market hours, "because if GM trades Ford trades", but the securities experienced a surprising turn of events as the issue dropped by $1.28, or 2.84%, to $43.82 compared to the stock, which only fell by $0.09, or 0.81%, to $11.09, for no apparent reason, according to a market source.

"I'm surprised that the preferred moved so much," the source said. "I can't really find an explanation. Maybe there was one big holder unloading a big portion."

Ford is a Dearborn, Mich.-based manufacturer of automobiles.

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