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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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): April 14, 1998
QUAKER STATE CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware 1-2677 25-0742820
(State or other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
incorporation)
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225 E. John Carpenter Freeway 75062
Irving, Texas (Zip Code)
(address of principal executive offices)
Registrant's telephone number, including area code: (972) 868-0400
N/A
(Former name or former address, if changed since last report)
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ITEM 5. Other Events.
On April 14, 1998, Quaker State Corporation, a Delaware corporation
(the "Company"), Pennzoil Company, a Delaware corporation ("Pennzoil"),
Pennzoil Products Company, a Delaware corporation and a wholly owned subsidiary
of Pennzoil ("PPC"), and Downstream Merger Company, a Delaware corporation and
a wholly owned subsidiary of PPC ("Merger Sub"), entered into an Agreement and
Plan of Merger (the "Merger Agreement"). The Merger Agreement and related
agreements provide for the separation of Pennzoil's motor oil, refined products
and franchise operations from its exploration and production operations and for
the combination of the motor oil, refined products and franchise operations
with the Company.
The transactions contemplated by the Merger Agreement are (1) a pro
rata distribution, on a share for share basis, of all of the issued and
outstanding Common Stock of PPC to the holders of Common Stock of Pennzoil to
be followed by (2) a merger of Merger Sub with and into the Company, in which
holders of Capital Stock of the Company will receive, in exchange for each
share held, 0.8204 shares of Common Stock of PPC. Immediately following the
transactions contemplated by the Merger Agreement, approximately 38.5% of PPC
will be owned by former Company stockholders and approximately 61.5% of PPC
will be owned by stockholders of Pennzoil. The name of PPC will be changed
prior to or in connection with the merger to a new name to be determined.
Closing under the Merger Agreement is conditioned on, among other
things, approval by the Company's stockholders, expiration or termination of
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
and receipt of a tax ruling from the Internal Revenue Service.
A copy of the Merger Agreement is filed as Exhibit 2.1 hereto and is
incorporated herein by this reference. On April 15, 1998, the Company and
Pennzoil issued a press release announcing the execution of the Merger
Agreement. A copy of the press release is filed as Exhibit 99.1 hereto and is
incorporated herein by this reference. The foregoing summary does not purport
to be complete and is qualified in its entirety by reference to such documents.
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ITEM 7. Exhibits
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EXHIBIT
NUMBER EXHIBIT
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2.1 Agreement and Plan of Merger among Pennzoil Company, Pennzoil
Products Company, Downstream Merger Company and Quaker State
Corporation, dated as of April 14, 1998 (incorporated by
reference to Exhibit 2.1 of the 8-K dated April 20, 1998 filed
by Pennzoil Company).
99.1 Press release, dated April 15, 1998, issued by the Company
and Pennzoil Company (filed herewith).
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
QUAKER STATE CORPORATION
(Registrant)
By: /s/ Paul E. Konney
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Name: Paul E. Konney
Title: Senior Vice President,
Secretary and General Counsel
DATE: April 20, 1998
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EXHIBIT INDEX
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Exhibit No. Description
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2.1 Agreement and Plan of Merger among Pennzoil
Company, Pennzoil Products Company, Downstream
Merger Company and Quaker State Corporation, dated
as of April 14, 1998 (incorporated by reference to
Exhibit 2.1 of the 8-K dated April 20, 1998 filed by
Pennzoil Company).
99.1 Press release, dated April 15, 1998, issued by the
Company and Pennzoil Company (filed herewith).
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EXHIBIT 99.1
CONTACTS: Greg Panagos Steve Blum
V.P. Corp. Communications Sr. V.P. Corp. Relations
Pennzoil Company Quaker State Corporation
713-546-8914 972-868-0438
PENNZOIL AND QUAKER STATE TO FORM PREMIER AUTOMOTIVE PRODUCTS
AND CONSUMER CAR CARE COMPANY
PENNZOIL, IN MAJOR RESTRUCTURING, TO SPIN-OFF PRODUCTS GROUP
TRANSACTION CREATES $3 BILLION CONSUMER PRODUCTS COMPANY
AND A LEADING E&P COMPANY
HOUSTON (April 15, 1998) - Pennzoil Company (NYSE: PZL) and Quaker
State Corporation (NYSE: KSF) announced today that they have entered into a
definitive agreement to create a new publicly-traded company by combining the
motor oil, refined products and franchise operations of Pennzoil with all of
Quaker State. The merger will create a premier worldwide automotive aftermarket
products and consumer car care company, with annual sales expected to exceed $3
billion.
The transaction is part of a comprehensive restructuring by Pennzoil
that will result in separating Pennzoil's motor oil, refined products, and
franchise operations from its exploration and production operations. Pennzoil's
motor oil, refined products and franchise operations will then be combined with
all of Quaker State to form a new and yet to be named company.
James L. Pate, Pennzoil's chairman and chief executive officer, said,
"These are major strategic actions and a defining moment in Pennzoil Company's
long and illustrious history. They represent significant steps in Pennzoil's
efforts to maximize long-term shareholder value. The spin-off of our automotive
consumer products and manufacturing businesses will unlock substantial, but
unrecognized
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value, create a large, focused independent exploration and production company,
and position both the upstream and downstream companies for growth."
Herbert M. Baum, Quaker State's chairman and chief executive added,
"This merger will create a new and dynamic consumer automotive aftermarket
company, offering consumers a wide array of branded automotive products and an
excellent service organization. By combining our company with Pennzoil's
automotive consumer products and manufacturing businesses and realizing
substantial synergies and efficiencies, the new company will be able to achieve
growth and returns well in excess of those we could have generated
independently."
The merger is expected to be tax free to Pennzoil, Quaker State and
their respective shareholders and will be accomplished in two steps. First,
Pennzoil's motor oil, refined products and franchise operations will be spun off
to Pennzoil's shareholders. Second, those businesses and Quaker State will
combine in a stock-for-stock merger.
Pennzoil and Quaker State shareholders will own 61.5 percent and 38.5
percent, respectively, of the newly combined company, which will have
approximately 77.4 million shares outstanding. Pennzoil shareholders will
continue to hold their existing Pennzoil shares plus they will receive one share
of the new company for each Pennzoil share held. Quaker State shareholders will
receive .82 shares of the new company for each share of Quaker State.
Pro forma for 1997, Pennzoil's downstream businesses had revenues and
recurring operating income of approximately $2 billion and $92 million,
respectively. As part of the spin-off, it is expected that the downstream
businesses will have approximately $436 million of long-term debt and $64
million of capitalized lease obligations immediately prior to the merger with
Quaker State. Quaker State's revenues and recurring operating income for 1997
were approximately $1.2 billion and $64 million, respectively, and its long-term
debt as of year-end 1997 was approximately $429 million.
The merged company will be a leader in automotive consumer products in
North America. It will have strong brand positions in key product categories,
such as motor oil with Pennzoil(R) and Quaker State(R), fast oil changes with
Jiffy Lube(R)
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and Q-Lube(R), and car care products with Slick 50(R), Rain-X(R), Blue Coral(R),
Medo(R), Gumout(R), Fix-a-Flat(R), Classic(R) Car Wax and others.
The companies anticipate that the merger will generate cost savings of
$90 million to $125 million annually from the elimination of duplicate
functions, combined purchasing efficiencies, synergies in distribution and
marketing, and streamlining of general and administrative functions. The
resulting company's unique business mix and geographic strengths will also lead
to accelerated worldwide growth, increased financial and strategic flexibility
and strengthened merchandising. In connection with its program to generate
annual cost savings and record the effects of certain expenses and other charges
related to the spin-off and the merger, the new company expects to take initial
restructuring charges and incur other one-time expenditures ranging from
approximately $150 to $200 million in aggregate.
Mr. Pate will be chairman and chief executive officer of the newly
formed automotive consumer products company, and Mr. Baum will become vice
chairman. The board will consist of Mr. Pate, four other members appointed by
Pennzoil, Mr. Baum and two other members appointed by Quaker State. A committee
consisting of Mr. Pate, Mr. Baum, one Pennzoil director and one Quaker State
director will be responsible for recruiting a world class marketing executive to
be president and chief operating officer and serve on the new company's
nine-member board.
Separately, Pennzoil Exploration and Production Company will continue
as one of the largest U.S. based independent oil and gas companies. Pennzoil's
oil and gas business concentrates on three key geographic areas: domestic
onshore, domestic offshore and international. The company is highly focused on
its substantial core domestic asset base and high potential international
concessions that provide a solid foundation for growth. Pennzoil holds
significant exploration and development concessions in Azerbaijan, Egypt and
Venezuela. Over the past five years, operating costs have been reduced over 25
percent and reserve additions have been nearly 140 percent of production.
Mr. Pate added, "Pennzoil Exploration and Production Company is well
positioned for growth. The company has strong management in place, led by
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industry veterans Steve Chesebro' and Don Frederick. Separating the automotive
consumer products and manufacturing assets from our E&P business will create two
pure-play companies and allow Pennzoil's shareholders to realize the full value
of each business. The combination of our downstream businesses with Quaker State
significantly enhances the benefits of the restructuring to Pennzoil's
shareholders. This transaction continues the program Pennzoil has followed for
the past several years to streamline our businesses, improve earnings and cash
flow, and maximize shareholder value.
"Both the new consumer products company and Pennzoil Exploration and
Production Company will have their own securities for use in financing growth
through acquisitions, with the market having the flexibility to value Pennzoil
Exploration and Production Company on a cash flow basis and the new consumer
products company on an earnings basis.
"Quaker State has made significant progress under Herb Baum in
repositioning the company, expanding its consumer products and strengthening its
flagship brand. I look forward to working with Herb as this new car care company
takes a leadership position in the automotive after-market industry," Mr. Pate
said.
Mr. Baum said, "This is an exciting opportunity for the shareholders of
Quaker State and Pennzoil to create a premier car care consumer products company
in the U.S. Together we will offer consumers a full range of high quality
automotive products and services building on our strong national brands, solid
franchisee and distributor relationships and the growing consumer demand in the
automotive products market. The combined company will achieve significant
synergies and allow us to operate our overall lubricants and lubricants services
businesses more efficiently, creating greater value for our shareholders and
superior service and products for our consumers. Additionally, our branded
consumer automotive products group will be the most complete aftermarket branded
products company in North America.
"Over the past four years, Quaker State has achieved a solid turnaround
through improved operating efficiencies, marketing and brand management and
targeted acquisitions. We are now well positioned to take this next major step
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growth and increased profitability, which this transaction will make
possible. Quaker State employees, who have been the backbone of our success,
will be treated fairly and equitably," Mr. Baum continued.
The annual dividend of the newly combined company will be 75 cents per
share, and the annual dividend of Pennzoil Exploration and Production Company
will be 25 cents per share. After completion of this transaction, Pennzoil
shareholders will continue to receive a total combined annual dividend equal to
Pennzoil's current annual dividend of $1.00 per share. The annual dividend to
Quaker State's shareholders on their shares in the new automotive aftermarket
products and consumer car care company will represent a 54 percent increase over
Quaker State's current annual dividend of 40 cents per share.
The merger is conditioned upon the approval of Quaker State
shareholders, receipt of certain tax rulings and a Hart-Scott-Rodino review. The
companies anticipate that the transaction should close in the second half of
1998. The transaction will be accounted for using the purchase method.
Lehman Brothers Inc. is acting as financial advisor to Pennzoil on the
combination of its products group with Quaker State, and Lehman Brothers Inc.,
Evercore Group Inc. and J.P. Morgan Securities Inc. are acting as financial
advisors to Pennzoil on its restructuring. Chase Securities Inc. and Goldman,
Sachs & Co. are acting as financial advisors to Quaker State.
Pennzoil Company explores for and produces crude oil and natural gas,
manufactures and markets premium quality lubricants, including America's top
selling motor oil for the past 12 years, and is the parent company of Jiffy Lube
International, the world's largest franchisor of fast oil change centers.
Quaker State is principally a manufacturer and distributor of leading
consumer aftermarket products and services, including motor oil and a full-range
of high-quality automotive treatment, appearance, accessory and air freshener
products.
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