NEW YORK (AP) -- Rumors that Chevron, the second largest U.S. oil company, is courting Phillips Petroleum at a reported price tag of $18.4 billion sent the stocks of both companies higher Monday.
But analysts say the deal may be in jeopardy because Chevron's bid is believed to be too low.
Nevertheless, investors bought shares of both companies after Britain's Sunday Times reported that the two companies were nearing an agreement on a merger.
Chevron's stock rose $2.63 to close at $89.31 on the New York Stock Exchange, where Phillips Petroleum gained $1.44 to close at $63.38.
Neither company would comment on the rumors Monday.
In April, Phillips Petroleum entered Alaska's oil market when it concluded its $7 billion purchase of Atlantic Richfield Co. properties in the state, making it Alaska's largest petroleum producer.
Company spokeswoman Dawn Patience said Monday the company does not comment on market rumors.
The oil industry has been rife with consolidation in the past two years. Mobil Corp. and Exxon Corp. joined forces in late 1998 in an $85 billion merger that formed the world's largest publicly traded oil company. And Britain's BP Amoco's paid $27.6 billion for U.S.-based Atlantic Richfield Co. in March, 1999, creating the second largest non-government owned oil company.
So with the world's major oil companies growing larger and larger, analysts said it makes sense that Chevron would be looking to expand its operations to keep in step with the competition.
San Francisco-based Chevron has offered about $70 a share for Phillips Petroleum, the Sunday Times reported. A combined company would be worth about $78 billion.
Oil industry analysts, however, are skeptical that the deal will be completed at that price.
''There's less than a fifty-fifty chance that this deal will happen. The asking price is much too low,'' said Edward Maran, an analyst at A.G. Edwards & Sons in St. Louis.
''Phillips Petroleum isn't likely to accept anything below $80 a share, and it's not clear to me that Chevron is willing to pay a price that would get it completed,'' Maran added.
A full merger would complete a process begun earlier this year, when the two companies agreed to combine their chemical units.
But if the broader deal falls apart, Chevron would be in familiar territory. A deal with Texaco unraveled last summer after Texaco basically rejected all aspects of Chevron's offer. Texaco said in a terse statement released last June that Chevron's proposal was ''unacceptable for several reasons, including complexity, feasibility, risk and price.''
Ironically, the financial aspects of the defunct Texaco deal were similar to those of the Phillips proposal. Texaco was seeking an offer in the area of $80 a share, while Chevron had offered around $70.
Chevron is apparently looking to add Phillips' significant production assets outside the continental United States, most notably in Alaska, Venezuela, China and the former Soviet Union.
Since Chevron and Phillips' businesses have little overlap, the combination could be expected to pass regulatory muster because a merger wouldn't blend similar operations, a situation that regulators fear limits consumer choice and stifles competition.
Chevron had 1999 sales of $31.5 billion. Phillips, based in Bartlesville, Okla., had sales of $13.9 billion last year.
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