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Petroleum industry

Pennzoil to Split into Two Companies in Over $1 Billion Deal

Strategic Insights

— 1 min read

Pennzoil's decision to split into two companies, with one buying Quaker State Corp., will leave the Houston-based firm focused on finding and selling oil and natural gas, while creating a new company that will dominate the US motor oil market. This move comes after Pennzoil rejected a $6.4 billion bid from Union Pacific Resources Group last year, which was a 41 percent premium for Pennzoil shares. The Quaker State transaction is unlikely to boost Pennzoil stock to the $84 a share offered by Union Pacific, with analysts suggesting that Pennzoil remains vulnerable to a takeover.

Key Takeaways:

  • Pennzoil will split into two companies, with one buying Quaker State Corp. in a deal valued at over $1 billion in stock and assumed debt.
  • The new company will become the No. 1 US seller of motor oil, with approximately 35% of the US motor oil market.
  • Quaker State shareholders will receive 0.82 shares of the new company for each Quaker State share, valuing their shares at around $18.
  • Pennzoil shareholders will receive one share in the new company for every Pennzoil share owned in addition to their existing shares.
  • The deal combines Quaker State's motor oil and car-care products business with Pennzoil's motor oil and car-care products business, creating a company with over $3 billion in annual sales.
  • The new company will operate Quaker State's Q-Lube centers, Jiffy Lube, and other car-care products, including auto air fresheners and brake fluid.
  • Guy Wyser-Pratte, a shareholder and analyst, noted that Pennzoil's management was criticized for rejecting a $6.4 billion bid from Union Pacific Resources Group.

Statistics:

  • The transaction value is over $1 billion in stock and assumed debt.
  • Quaker State had a stock market value of $719.25 million based on Wednesday's closing share price.
  • Pennzoil will assume $429 million in Quaker State debt.
  • The new company will have around 35% of the US motor oil market.
  • The company will have over $3 billion in annual sales.
  • Quaker State's Q-Lube centers and Jiffy Lube will be combined under the new company.
  • The new company will include brands such as Pennzoil, Quaker State, and other car-care products.

Sources:

  • "Pennzoil Co. to Split into Two." The Wall Street Journal.
  • "Pennzoil shareholders are counting on the spin-off to boost their value." Dallas Business Journal.

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