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    Valero/UDS Reach Agreement with FTC

    Preliminary accord calls for companies to sell 70 stores and a California refinery.


    Valero Energy Corp. yesterday agreed to sell a refinery and 70 convenience stores northern California as part of negotiations with the Federal Trade Commission (FTC) over its proposed takeover of rival refiner Ultramar Diamond Shamrock Corp. (UDS).

    With the deal in-hand , Valero expects to close its $4-billion acquisition of UDS by the end of the year.

    As part of the agreement, Valero said it would part with the Golden Eagle refinery in Benicia, Calif. and 70 convenience stores, all currently owned by UDS. However, the five FTC commissioners must approve terms of the deal before it is considered final.

    Combining Valero and UDS, both based in San Antonio, would create the one of the nation's largest refining companies, with a capacity of nearly 2 million barrels a day from a dozen refineries and roughly 5,000 service stations.

    "We are combining the two best independent refining and marketing companies to make Valero the premier independent refiner and marketer in the United States," said Bill Greehey, Valero's chairman and CEO. "By combining Valero and UDS, we're creating a company that is better positioned in the industry than either company individually and we'll be one of the top three refiners in the country."

    Valero had pushed to keep both of the UDS refineries in California, the nation's most lucrative gasoline market. Valero already owns a 165,000-barrel-per-day refinery in the San Francisco Bay area, not far from the Golden Eagle plant.

    After the divestiture, Valero will still have two high-performing refineries in California with a combined throughput capacity of 320,000 barrels per day (bpd), and an expanded retail network of more than 700 stores.

    The FTC wanted Golden Eagle sold to promote refinery competition in the area, with the gas stations made part of the deal to ensure a marketing outlet for Golden Eagle, which has a capacity of 168,000 barrels per day.

    "The Golden Eagle Refinery should command a premium price," said Jean Gaulin, chairman of the board and CEO of UDS, who paid $950 million to acquire the facility from Tosco Corp. last year.

    Assuming the merger goes through, Valero would have a year from the completion date to sell off the assets.

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