EL PASO — Western Refining Inc. said Monday it is buying Scottsdale-based Giant Industries Inc. for $1.23 billion in cash, creating the fourth-largest publicly traded independent oil refiner in the United States.
News of the deal sent Giant Industries' shares up 15 percent, while Western Refining gained 3.3 percent.
The combined company will have the capacity to handle about 216,000 barrels per day from four refineries. That is about 84 percent more than Western's current capacity.
Western already has a refinery in El Paso, where it is based. The deal will give it an East Coast presence with a refinery in Yorktown, Va., and two refineries in northern New Mexico.
In addition to its refineries, Giant Industries owns a crude-oil gathering pipeline system based in Farmington, N.M., a fleet of crude-oil and finished-product truck transports, and a chain of retail service station and convenience stores in New Mexico, Colorado and Arizona.
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The company lists 49 retail outlets in Arizona, including 10 in the Tucson area.
It also is the parent company of Phoenix Fuel Co. Inc. and Dial Oil Co., both of which are wholesale petroleum products distributors.
In a conference call Monday morning, Western CEO Paul Foster said "the time is right for this combination of companies."
"We will maintain the ability to grow and prosper," Foster said. "We plan to achieve significant efficiencies and a the same time, maintain flexibility."
Foster said the deal, expected to close in the fourth quarter pending customary conditions and regulatory approvals, is likely to save the new company about $20 million annually. But no job losses are expected, Foster said.
However, a transition team of officials from both companies will organize to review how best to integrate the two companies' operations and report in from nine to 12 months, he said.
Giant Chairman and Chief Executive Officer Fred Holliger will serve as a special adviser to the Western board.
Foster said his company approached Giant about an acquisition early this summer.
Worldwide consumption of refined oil products continues to increase without any indication of abating, he said. Western wanted to expand its refining activities, and "we've known their management and their company for many years," Foster said of Giant.
The purchase will mean the loss of Western's small-refinery status, but Foster said the status change is not significant, given that the company was nearing the end of the regulating period.
The acquisition also will bring retail operations that Western does not have, he said. "It's a complementary business for us," he said.
Under the terms of the deal, Western Refining will pay $83 per share for Giant. That represents a 16 percent premium over Giant's share price of $71.79 at the close of trading Friday.
Western Refining will also assume $275 million in debt in the deal.
Giant Industries shares rose $10.43, or 15 percent, to close at $82.22 on the New York Stock Exchange, while Western Refining shares gained 85 cents, or 3.3 percent, to finish at $25.14.
Western expects Giant to add to cash flow and per-share earnings immediately following closing.
Western plans to finance the deal with $250 million in existing cash and a $2 billion loan from Bank of America.
The company, which is keeping its headquarters in El Paso, plans to continue paying a dividend of 4 cents a share each quarter.
Giant got its start in 1961, with $1,500 of borrowed money, when Jim Acridge and a friend leased a Richfield service station in Glendale. Giant built its first full-service station in Pinetop in 1966.
The company built its first refinery in Farmington, N.M., in the mid-1970s and went public in 1989.
Acridge was ousted as CEO in 2002 in a following a dispute over a loan.