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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
MAY 15, 2000
VALERO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware 1-13175 74 -1828067
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(State of incorporation) Commission File (I.R.S. Employer
jurisdiction Number Identification No.)
of incorporation
One Valero Place, San Antonio, Texas 78212
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(Address of principal executive offices) (Zip Code)
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(210) 370-2000
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(Registrant's telephone number, including area code)
Not applicable
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(Former name or address, if changed since last report)
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ITEM 2. ACQUISITION OF ASSETS
ACQUISITION OF EXXONMOBIL'S BENICIA, CALIFORNIA REFINERY AND CERTAIN ASSETS OF
CALIFORNIA RETAIL BUSINESS
THE ACQUISITION
On March 2, 2000, Valero and Exxon Mobil Corporation executed a sale
and purchase agreement pursuant to which Valero agreed to acquire ExxonMobil's
Benicia, California refinery and Exxon-branded California retail assets, which
consist of approximately 80 service station facilities (the "Service Station
Assets") and branded supplier relationships with approximately 260 Exxon-branded
service stations (the "Distribution Assets"), for a purchase price of $895
million plus an amount for refinery inventories acquired in the transaction
based on market-related prices at the time of closing. ExxonMobil agreed to sell
these assets as a result of consent decrees issued by the Federal Trade
Commission and the State of California providing that certain assets be divested
by ExxonMobil to satisfy anticompetitive issues in connection with the recent
merger of Exxon Corporation and Mobil Corporation. The consummation of the
Benicia acquisition has been approved by the Federal Trade Commission and the
Office of the Attorney General of the State of California. The acquisition of
the Benicia refinery and the Distribution Assets closed on May 15, 2000, at
which time the value of inventories was estimated to be approximately $123
million, and the acquisition of the Service Station Assets is expected to close
on or about June 15, 2000. The assets acquired from ExxonMobil will continue to
be used for the same purposes they were used prior to the acquisition.
The purchase agreement contains representations and warranties of each
of Valero and ExxonMobil, which survive the closing for one year, as well as
customary covenants. In addition, Valero will assume the environmental
liabilities of ExxonMobil with certain exceptions. ExxonMobil retained liability
for (i) pending penalties assessed for violations relating to the Benicia
refinery, (ii) pending lawsuits, (iii) all costs associated with compliance with
a variance issued in connection with control of nitrogen oxides, (iv) claims in
connection with offsite transportation and disposal of wastes prior to closing
asserted within three years of closing or asserted with respect to abandoned
disposal sites, (v) the capital costs incurred within five years of closing for
specified corrective action of groundwater and soil contamination, (vi) all
covered contamination at the Service Station Assets caused by ExxonMobil or its
lessees that is reflected in baseline reports prepared prior to closing, and
(vii) the repair or replacement of any underground storage tanks at the Service
Station Assets found to be leaking prior to closing. ExxonMobil has agreed to
indemnify Valero for all losses related to these retained liabilities, provided
that ExxonMobil will indemnify Valero for losses related to covered
contamination at the Service Station Assets for a period of five years from the
date of closing. In addition, ExxonMobil will indemnify Valero for breaches of
its representations and warranties to the extent that the aggregate amount of
Valero's losses resulting from such breaches exceeds $1 million and ExxonMobil
receives notice of such losses within one year after the closing date.
The Benicia refinery is located on the Carquinez Straits of the San
Francisco Bay. It is considered a highly complex refinery and has a total
throughput capacity of approximately 160,000 barrels per day or "BPD." The
Benicia refinery produces a high percentage of light products, with limited
production of other products. It can produce approximately 110,000 BPD of
gasoline, 14,000 BPD of jet fuel, 11,000 BPD of diesel and 8,000 BPD of natural
gas liquids. Approximately 95% of the gasoline produced by the Benicia refinery
meets the California Air Resources Board ("CARB") II specifications for gasoline
sold in California. The refinery has significant liquid storage capacity,
including storage for crude oil and other feedstocks. Also included with the
refinery assets are a deepwater dock located offsite on the Carquinez Straits
that is capable of berthing large crude carriers, petroleum coke storage silos
located on an adjacent dock, a 20-inch crude
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pipeline connecting the refinery to a southern California crude delivery system,
and an adjacent truck terminal for regional truck rack sales. Under the consent
decrees, ExxonMobil was required to offer the buyer of the divested assets a
crude oil supply contract. As a consequence, in connection with the closing of
the acquisition of the Benicia refinery and the Distribution Assets, Valero
entered into a ten-year term contract providing for ExxonMobil to supply and for
Valero to purchase 100,000 BPD of Alaska North Slope ("ANS") crude oil at
market-related prices, to be reduced to 65,000 BPD on January 1, 2001. Prior to
January 1, 2001, Valero will have an option to reduce the volume of ANS crude to
65,000 BPD with 90 days' prior notice. After January 1, 2001, Valero will have
an option to reduce the required volumes by an additional 20,000 BPD once per
year.
The Service Station Assets include 10 company-operated service stations
and 70 lessee-dealer service stations in the San Francisco Bay area. Under the
consent decrees related to the merger between Exxon Corporation and Mobil
Corporation, the Federal Trade Commission and the State of California ordered
that ExxonMobil withdraw the "Exxon" brand name from the San Francisco area. As
a result, ExxonMobil has notified the dealers in this market area that their
franchise right to market "Exxon" branded products is being terminated effective
June 15, 2000. Valero plans to introduce its own brand of retail petroleum
products in the San Francisco Bay area and has offered to the dealers at these
locations a franchise right to market products under the new Valero brand. Due
to the timing requirements of ExxonMobil's franchise termination notice to
various dealers as described above, ExxonMobil cannot close the acquisition of
the Service Station Assets until (i) all of the dealers agree to terminate their
franchise agreements or (ii) June 15, 2000, whichever comes first. Subsequent to
the anticipated June 15, 2000 closing date, Valero plans to offer those dealers
who accept Valero's franchise offering an option to purchase the stations that
they are currently leasing. As part of the purchase option, the dealers must
enter into a fuels purchase agreement with Valero for a term of 15 years. The
dealers will have 90 days to exercise or reject their purchase option.
The Distribution Assets include up to 260 independently-owned and
operated distributor facilities which are located outside of the San Francisco
Bay area. The distributor locations will retain the right to use the Exxon
brand, continue to accept the Exxon proprietary credit card and receive Exxon
brand support, while Valero will receive the exclusive rights to offer the Exxon
brand throughout the state of California (except for the San Francisco Bay area)
for a ten-year period. In connection with the Benicia acquisition, ExxonMobil
assigned to Valero all of the existing Exxon California distributor contracts
under which the distributors will purchase Exxon branded products from Valero
after the acquisition.
THE FINANCING
Valero established with a group of banks a $600 million bridge loan
facility (the "Bridge Facility"), arranged by J.P. Morgan Securities Inc., to
provide interim financing in connection with the Benicia acquisition. The Bridge
Facility has a term of one year, and Valero has an option to extend for an
additional two years. The Bridge Facility has covenants similar to those
contained in Valero's $835 million bank credit and letter of credit facility
(the "Credit Facility"). Any amounts borrowed under the Bridge Facility bear
interest at LIBOR plus an applicable margin. The Credit Facility bears interest
at either LIBOR plus a margin, a base rate or a money market rate. The interest
rate and fees under the Credit Facility are subject to adjustment based upon the
credit ratings assigned to Valero's long-term debt. The Credit Facility includes
certain restrictive covenants including a fixed-charge coverage ratio, a
debt-to-capitalization ratio, and a minimum net worth test. Valero has amended
its existing bank credit facilities to provide for, among other things, the
higher debt-to-capitalization limits necessary to complete the Benicia
acquisition.
The acquisition of the Benicia refinery and the Distribution Assets was
funded through interim financing consisting of (i) borrowings of $600 million
under the Bridge Facility, (ii) borrowings of $298.5
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million under Valero's existing bank credit facilities and (iii) an approximate
$30 million interim structured lease arranged by The Fuji Bank, Ltd. to
accommodate the acquisition of the Benicia refinery's docking facility. It is
expected that this interim financing will be repaid and the acquisition of the
Service Station Assets will be funded through a mix of debt, equity and
structured lease financing.
Although Valero anticipates that the acquisition of the Service Station
Assets will be completed as described above, there can be no assurance that the
transaction will close on the above-noted date, that it will be funded as
described, or that all of the conditions required to close the transaction will
be met. The acquisition of the Benicia refinery and Distribution Assets will be
accounted for under the purchase method. The results of operations of the
acquired refining and retail assets will be included in the consolidated
financial statements of Valero beginning on the respective effective dates of
the transaction.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of business acquired.
(b) Pro forma financial information.
The financial statements and pro forma financial information required
by Items 7(a) and (b) are not included in this report and will be
filed by amendment not later than 60 days after this report.
(c) Exhibits.
2.1 First Amendment to the Sale And Purchase Agreement for Exxon
California Refining and Marketing Assets between Exxon Mobil
Corporation and Valero Refining Company-California, dated May
14, 2000, between Exxon Mobil Corporation and Valero Refining
Company-California.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Current Report on Form 8-K to be signed on
its behalf by the undersigned hereunto duly authorized.
VALERO ENERGY CORPORATION
By: /s/ John D. Gibbons
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John D. Gibbons
Vice President and
Chief Financial Officer
Dated: May 30, 2000
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EXHIBIT INDEX
Valero Energy Corporation
Current Report on Form 8-K
EXHIBITS
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EXHIBIT NO. DESCRIPTION
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2.1 First Amendment to the Sale And Purchase Agreement for Exxon California Refining and
Marketing Assets between Exxon Mobil Corporation and Valero Refining
Company-California, dated May 14, 2000, between Exxon Mobil Corporation and Valero
Refining Company-California.
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