Chevron Corp CVX unveiled plans to buy Hess Corp HES on Monday. Executives from the both oil giants discussed details of the deal shortly after it was announced.
What Happened: Chevron entered into a definitive agreement to acquire Hess in an all-stock transaction valued at $53 billion. The San Ramon, California-based company will pay $171 per share for the acquisition, and Hess shareholders will receive 1.025 shares of Chevron for each Hess share held.
The agreement extends Chevron's production and free cash flow growth outlook into the 2030s and supports higher distributions for shareholders.
"Hess brings growth to Chevron — growth in resource, growth in production, growth in cash flow — and Chevron brings us financial strength," Hess CEO John Hess said on CNBC's "Squawk On The Street."
"In terms of a strong balance sheet, a diversified portfolio of assets and industry-leading cash returns," Hess added.
The two oil giants have talked about a potential merger in the past, but the numbers never worked out, Hess said. This deal exposes Hess shareholders to a higher dividend while also getting to participate in further upside through Chevron stock, he explained.
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Chevron chairman and CEO Mike Wirth noted that that upside could be significant as the two companies come together.
"We announced the intent to raise our dividend 8% in the first quarter of next year and increase our share buyback to $20 billion ... We're returning to cash to shareholders and still see relatively low multiples compared to the rest of the market so we think there's a lot of upside," Wirth said.
Chevron is taking a balanced approach to the market. Companies in the past have found themselves in deep water only chasing growth, he said. Shareholders expect a return of capital as well as a return on capital, he added.
Chevron shares are down nearly 10% year-to-date. Shareholders are selling Monday's news, as the stock was down 2.53% at $162.61 at the time of writing, according to Benzinga Pro.
16 analysts currently have positive ratings on Chevron, four have neutral ratings and just one has a negative rating. The average 12-month price target is approximately $188 per share. Look for analysts to update forecasts this week following the company's acquisition of Hess.
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Photo: Ben P L from Flickr.
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