SAN RAMON, Calif. - Chevron Corp. is planning an asset-liability study and an asset allocation study, moves decided before the mid-October announcement of its proposed merger with Texaco Inc.
David P. Smay, Chevron manager-investments and actuarial, said now the studies will take on added importance. "This will help us get ready for the merger with Texaco, which will get us a new set of obligations and challenges."
Chevron hasn't picked a consultant to assist it with the studies, but Mr. Smay said it has narrowed the list and has several in mind.
The proposed merger makes clear that big oil is getting bigger, and so are its pension funds.
The combined companies, which will be known as ChevronTexaco Corp. if the merger is approved by the Federal Trade Commission and shareholders, would have defined benefit and defined contribution assets totaling $16.5 billion. That would rank it 59th among the 200 largest U.S. plan sponsors in terms of employee benefit assets, based on Sept. 30, 1999, data the companies submitted to Pensions & Investments.
Chevron, whose pension staff is based in San Ramon, Calif., has almost three times as much in employee benefit assets as Texaco, underscoring the most obvious of some big differences between the companies.
No plans yet
Whether the plans would be combined, or how, hasn't been discussed by executives of the two companies.
"I don't think there will be any discussion for a while yet," Mr. Smay said. "It will be probably at least six months before we get the FTC approval."
Chevron has a traditional defined benefit plan with $4.67 billion in assets as of Jan. 1, according to its annual report. It also had an estimated $7.88 billion in defined contribution assets, including profit-sharing, 401(k) and leveraged employee stock ownership plans, according to P&I's 2000 sponsors survey.
The Chevron and Texaco defined contribution plans are big holders of stock in their own companies.
Some 85% of Chevron's defined contribution assets are in Chevron stock, according to a P&I report. That would be valued at $6.97 billion and amount to 12.4% of total shares outstanding.
A Texaco employee stock ownership plan held 7.47% of Texaco stock as of Dec. 31, according to a filing with the Securities and Exchange Commission.
Mr. Smay said the Chevron defined contribution plan's holdings of company stock may be a little less than 85%, but still substantial.
Chevron's defined benefit asset allocation was 41% domestic equities; 20% international equities; 23% domestic fixed income; 6% cash equivalents; and 10% other, which is mainly real estate equity and includes a small amount in buyout partnerships. The defined benefit fund owns no Chevron stock.
Texaco, White Plains, N.Y., had $1.64 billion in domestic defined benefit assets and $2.8 billion in defined contribution assets, according to its annual report. Also, Texaco had $980 million in defined benefit assets for international plans. Texaco's asset allocation wasn't available.
The Chevron and Texaco defined benefit plans have few overlapping managers. They are: Mellon Capital Management Corp.; J.P. Morgan Investment Management Inc.; Prudential Insurance Co. of America; and State Street Global Advisors.
Mr. Smay said Chevron is winding down its three limited partnerships. "We haven't been happy with them," he said. "Performance hasn't been good enough to compensate for things you have to give up like liquidity and high fees."
The defined benefit plan has no pure passive investments, Mr. Smay noted. But SSgA's international equity portfolio is "close to" a passive Europe Australasia Far East index fund; Barclays and Mellon use enhanced indexes; and J.P. Morgan is "close to" the Standard & Poor's 500 index, its benchmark.
Texaco's managers include minority- and women-owned firms hired in 1997 as part of a racial discrimination settlement. They are Ariel, Brown, Hughes, NCM, Payden & Rygel, Smith Graham and Utendahl. These firms manage about 12% of the assets, according to a P&I report.
The two defined contribution plans have overlap in managers.
Chevron offers participants a number of managers. Mr. Smay said its 401(k) plan offers participants several index funds, all managed by SSgA: S&P 500; Russell 2000 for small-cap; EAFE for international; and balanced, composed of an S&P 500 index fund for equity and a Lehman aggregate bond index for fixed income. In addition, he said the plan offers an active domestic growth equity fund managed by Jennison, and an active domestic value fund managed by Sanford C. Bernstein. It also offers a mutual fund window, allowing participants to invest in some 3,000 mutual funds, he said.
Chevron's 401(k) plan has profit-sharing and employee stock ownership components. The plan provides for a 2% match plus, depending on corporate performance, Mr. Smay said. Both the match and the profit-sharing components are contributed in the form of Chevron stock, which accounts in part for the major holding of company stock by the defined contribution plan. The Chevron stock has liquidity constraints for participants.
Mr. Smay said Chevron was contemplating adding several investment options to its 401(k) by next March, but likely will postpone that pending the merger.