ANDV Andeavor

Oil refiner Tesoro Corp. will buy Western Refining Inc. in a deal worth about $4.1 billion as the U.S. refining market faces the declining spread between U.S. and global oil prices.

Tesoro said Thursday it would acquire Western for 0.4350 Tesoro shares, valued at $37.3, or $37.30 in cash per share, a 22% premium over Western's closing price Wednesday. The cash option will be subject to proration if the aggregate request exceeds 10.8 million shares, or about $404 million.

Despite the drop in energy prices, U.S. refiners have largely held up well until recently as lower prices can lead to higher volumes and they were able to partake in energy arbitrage. More recently, however, the spread between the U.S. crude-oil benchmark West Texas Intermediate and the global benchmark, Brent, has narrowed by 75%, reducing the gains refiners get from taking in the cheaper crude and transforming it into fuels that could be sold at the higher prices linked to the global oil benchmark.

For years, U.S. refiners benefited as oil unlocked by the shale boom was essentially landlocked due to a ban on most crude exports, creating a glut that pushed down prices compared with barrels in Africa and the Middle East. Now U.S. oil production is falling and last December the U.S. agreed to lift the ban on crude exports, reducing the differential.

The deal adds Western's refineries in Texas, New Mexico and Minnesota to Tesoro's refineries in California, Washington, Alaska, Utah and North Dakota. The company will also have a retail-network of more than 3,000 convenience and gas stations.

Tesoro said Greg Goff will continue as chief executive and Western Executive Chairman Paul Foster and Chief Executive Jeff Stevens will join as directors.

The transaction is expected to close in the first half of 2017 and is subject to shareholder votes by both companies.

Write to Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

November 17, 2016 07:35 ET (12:35 GMT)

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