UPR Offers to Buy Pennzoil for $3.9 Billion

Union Pacific Resources Group Inc. offered on Monday to buy Pennzoil Co. in a two-step deal worth about $3.9 billion, stepping up the pressure on the independent oil producer after on-again, off-again merger talks.

Including assumption of debt, the deal would be worth about $6.4 billion.

News of the offer, valued at $84 per Pennzoil share, sent the stock soaring, and it was up $17.75 to close at $77.375 on the New York Stock Exchange.

Pennzoil management said it would review the offer and promised a response on or before July 7. It asked Pennzoil shareholders to defer taking any action on the Union Pacific tender offer until the company issues its response.

“We believe that the merger of UPR and Pennzoil will create the premier independent exploration and production company in the U.S.,� Union Pacific Chairman Jack Messman said in a statement.

Union Pacific said the combined company would lead the industry in a number of performance measures, including drilling activity, production and cash flow.

Union Pacific said it would make a cash tender offer for 50.1% of Pennzoil’s shares, starting Monday, followed by an exchange of shares for the remaining 49.9%. The Union Pacific shares will be worth $25 to $30 apiece, depending on stock prices before closing of the deal.

Union Pacific’s stock lost $1.125 to close at $25.25, also on the NYSE.

Union Pacific Resources President George Lindahl said in a telephone interview that the company has held merger talks with Pennzoil for four months and decided to put the offer directly to shareholders. He said Union Pacific would borrow about $2 billion to finance the deal.

“Our financial strength means we do not have any plans to sell the Jiffy Lubes or motor oils division, which in any case account for only 10% of Pennzoil’s business,� he said.

Lindahl said Pennzoil had used cash from its U.S. business to fund its overseas development and noted that the company ranks 34th in terms of drilling in the United States, while Union Pacific ranks first.

Union Pacific said in a statement that “these two companies belong together.�

The company also said Pennzoil Chairman James Pate in 1995 proposed a merger with UPR, when it was a subsidiary of Union Pacific Corp.

Union Pacific Resources said it sought a friendly merger but that its advances were repeatedly rebuffed.

The deal requires approval by shareholders of both companies and regulators, Union Pacific Resources said.