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    Western Refining Buys Giant Industries for $1.23B

    Acquisition will bring the "complementary" retail operations Western doesn't have now.

    EL PASO, Texas -- Western Refining Inc. announced yesterday that it is buying Giant Industries Inc. for $1.23 billion in cash, creating the fourth largest publicly-traded independent oil refiner in the U.S., according to an Associated Press report.

    The combined company will have the capacity to handle about 216,000 barrels per day from four refineries -- about 84 percent more than Western's current capacity. Western already has a refinery in El Paso, where it’s based. The deal will give it an East Coast presence with a refinery in Yorktown, Va., and two refineries in northern New Mexico.

    In addition to its refineries, Giant Industries, based in Scottsdale, Ariz., owns a chain of retail service stations and convenience stores in New Mexico, Colorado and Arizona; a crude-oil gathering pipeline system based in Farmington, N.M.; and a fleet of crude-oil and finished-product truck transports. It also is the parent company of Phoenix Fuel Co. Inc. and Dial Oil Co., both of which are wholesale petroleum products distributors.

    In a conference call Monday morning, Paul Foster, chief executive officer of Western Refining, said "the time is right for this combination of companies."

    "We will maintain the ability to grow and prosper. We plan to achieve significant efficiencies and at the same time, maintain flexibility,” Foster said, noting that the deal, expected to close in the fourth quarter pending customary conditions and regulatory approvals, is likely to save the new company about $20 million annually.

    The acquisition also will bring Western the retail operations that it does not currently have, he said. "It's a complementary business for us," he added.

    No job losses are expected, according to Foster, who said a transition team of officials from both companies will organize to review how best to integrate the two companies' operations and report back within nine to 12 months.

    Giant Chairman and Chief Executive Officer Fred Holliger will serve as a special adviser to the Western board, the Associated Press said.

    Western approached Giant about an acquisition early this summer. Western wanted to expand its refining activities, and "we've known their management and their company for many years," Foster said of Giant. Worldwide consumption of refined oil products continues to increase without any indication of abating, he said.

    The purchase will mean the loss of Western's small refinery status, but the status change is not significant, given that the company was nearing the end of the regulating period.

    Under the terms of the deal, as reported by the Associated Press, Western Refining will pay $83 per share for Giant. That represents a 16 percent premium over Giant's share price of $71.79 at the close of trading Friday. Western Refining will also assume $275 million in debt in the deal. The company plans to finance the deal with $250 million in existing cash and a $2 billion loan from Bank of America.

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