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. Last Updated: 07/27/2016

Shell to Buy Pennzoil for $1.8Bln

NEW YORK — The Shell Oil Co., the United States affiliate of Royal Dutch/Shell, has agreed to acquire the Pennzoil-Quaker State Co. for about $1.8 billion in cash.

That offer, which translates into $22 a share, amounts to a 42 percent premium over the $15.49 closing price yesterday of Pennzoil on the New York Stock Exchange. Shell will also assume about $1.1 billion in Pennzoil debt.

Pennzoil is the largest manufacturer of automobile lubricants and makes a variety of other car products, including Pennzoil and Quaker State motor oils, the biggest sellers in the United States, and owns Jiffy Lube, a sprawling franchise of oil change shops. Both companies are based in Houston.

Shell is something of a latecomer to the consolidation in the oil industry. BP and Exxon Mobil moved aggressively in the late 1990s to buy and grow. But Shell hung back, preferring to streamline its operations, industry analysts said. It has considered buying some companies, including Enron in the late 1990s. In a few cases, its advances were thwarted, most notably when it lost out to the Williams Companies for the natural gas producer Barrett Resources.

While other companies have mainly bought businesses that produce natural gas and oil, Shell, for the time being at least, seems to be trying to strengthen its position in refining and retail sales of petroleum products. The company last year along with the Saudi national oil company bought Texaco's stake in the oil refining and gasoline marketing businesses Equilon and Motiva for $1.2 billion.

The purchase of Pennzoil thrusts Shell into a "very competitive, very tough business," said Kate Warne, an analyst with the brokerage house Edward Jones. "I think of Pennzoil as more of a consumer products business than an oil company."

Warne said she thought Shell overpaid "somewhat" for Pennzoil, and said the company would have to explain how its foray into ventures like Jiffy Lube would add to its bottom line.

Shell expects the deal to proceed smoothly. The boards of both companies have approved the acquisition. Shell expects the acquisition to be completed in the second half of this year. It appears unlikely that the transaction will face regulatory problems, analysts said.

Shell also said it expected pretax benefits from the merger to total $140 million a year by 2004.

The company also estimated that one-time costs and others related to the acquisition would total $100 million.