HOUSTON — Pennzoil-Quaker State Co., the nation's largest motor oil maker and parent company of more than 2,000 Jiffy Lube oil change service stations across the country, is becoming part of Royal Dutch/Shell Group in a deal worth $1.8 billion.
The agreement was announced Monday night in Houston, where both companies are headquartered.
While officials at both firms said the familiar Pennzoil and Quaker State brands, the nation's two best-selling motor oils, will survive, some jobs will not.
"We do expect some reductions in staff," Gail Schutz, a Shell spokeswoman, said.
She estimated 15 percent — or some 1,230 jobs — would be eliminated "within the combined work force of Shell Lubricants and Pennzoil-Quaker State."
Shell has about 7,000 workers in Houston, and its Lubricants Group employs about 800 people. Pennzoil-Quaker State has a worldwide work force of about 7,400.
Discussions that led to Monday's announcement started about a month ago when Shell officials approached Pennzoil-Quaker State executives, both companies said. Pennzoil-Quaker State spokesman Ray Scippa said no other oil companies were involved.
The deal, approved Monday by Pennzoil-Quaker's board, is expected to close in the second half of this year. It still needs the approval of shareholders and regulators.
It's the latest in a series of mega-mergers within the energy industry.
Just two weeks ago, shareholders of Conoco Inc. and Phillips Petroleum Co. overwhelmingly approved a proposed $15.6 billion merger, moving the companies one step closer to creating the nation's third-largest oil corporation. The new company will be based in Houston.
Last September, the Federal Trade Commission approved Chevron Corp.'s acquisition of Texaco Inc. Other deals include BP Amoco's takeover of Atlantic Richfield Corp. in 1999 and Exxon Corp.'s acquisition of Mobil Corp., as the world's largest oil companies look for size and breadth to gain a competitive edge.
Pennzoil-Quaker State is the result of a marriage announced in 1998 and completed a year later.
"This is another example of the larger well-financed, well-managed companies aggregating all the resources necessary to compete in a consolidating industry, with the large independents being the most likely targets," David L. Bole, vice president of Randall & Dewey, Inc., a Houston-based oil consulting firm, said.
The deal calls for Shell, a unit of Royal Dutch Petroleum Co., to pay $22 for each share of Pennzoil-Quaker State and assume $1.1 billion of the Houston-based company's debt, Shell said.
The per share price represents a 42 percent premium over the $15.49 closing price of Pennzoil-Quaker shares on Monday. The deal was announced after the stock markets closed, and shares of Royal Dutch closed down $1 at $52.80 Monday on the New York Stock Exchange.
Rob Routs, Shell Oil Products president and chief executive, said the deal will generate annual cost savings of about $140 million by 2004.
Pennzoil-Quaker State chief executive Jim Postl called the deal an effective way to leverage his company's name recognition.
"Pennzoil-Quaker State will benefit significantly from being part of an enterprise with the geographic scope, operational scale, breadth of products and services, and financial resources necessary to compete in a consolidating industry," he said. Pennzoil-Quaker State is the United States' biggest producer of motor oil. Its Jiffy Lube brand has more than 2,150 locations across the United States.