Oil Mergers: Uh, About That Break For Consumers...
Shareholders of Chevron Corp. and Texaco Inc. should be pleased. Chevron's agreement to buy Texaco for $34 billion in stock, announced Oct. 16, will create the world's fourth-largest oil and gas company in an era when size matters. The merger is expected to shave $1.2 billion--perhaps more--from the combined companies' annual expenses. And if history is any guide, the merged company could enjoy a higher price-earnings multiple than its predecessors because of forecasts of faster earnings growth. ExxonMobil Corp., for example, trades at 25 times the past year's earnings, up from 18 for Exxon alone before its big merger. Chevron, in contrast, trades at 15 times earnings. Over the past five years, big acquirers in the oil biz have performed far better than their unacquisitive sisters (chart).
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