STOCK-SWAP DEAL TO FORM REFINING GIANT.

Byline: David Ivanovich Houston Chronicle

Diamond Shamrock and Ultramar Corp. have agreed to merge their operations to create one of the nation's largest independently owned refining and marketing companies.

The new company - to be known as Ultramar Diamond Shamrock Corp. - will boast assets of $4 billion and annual sales of more than $8 billion.

Under the terms of a deal announced Monday, shareholders of San Antonio-based Diamond Shamrock will trade each of their 32.9 million shares for 1.02 shares in the new entity.

Since Diamond Shamrock stock closed at 30-1/4 on Friday - the last day of trading before the transaction was announced - the deal is worth about $1.03 billion for Diamond Shamrock shareholders.

Overall, the new company will have total market capitalization - that is, the combined value of the two companies' stocks - of $2.3 billion.

``This is a merger of equals,'' said Roger Hemminghaus, Diamond Shamrock's chief executive officer. ``The companies are approximately the same size in terms of asset value. The companies will each contribute six members to the new board of directors.''

Diamond Shamrock operates two refineries in Texas and operates 2,700 Corner Store, Stop N Go and Diamond Shamrock locations in nine states in the Southwest.

Ultramar refines oil and sells gasoline in California, and distributes gas and heating oil in eastern Canada and New England. Its brands are Ultramar, Beacon and Sergaz.

The Greenwich, Conn.-based Ultramar has about 4,000 employees and Diamond Shamrock has more than 13,000. About 200 employees will be laid off as a result of the merger, with many of the cuts coming in California.

The new company will rebrand some Ultramar operations in California to carry the Diamond Shamrock name.

The new company, which will be based in San Antonio, will rank fourth among independent refining and marketing companies, after Sun Co., Citgo Petroleum Co. and Tosco Corp.

The partners estimate the merger will save the two companies about $25 million next year and about $75 million annually starting in 1998.

Ultramar's stock leapt 1-3/8 Monday to close at 29-7/8 on the New York Stock Exchange. Diamond Shamrock's stock rose -3/8 to close at 30-1/2.

For the short term, Hemminghaus will serve as chief executive of the new company. Ultramar Chief Executive Jean Gaulin will serve as president and chief operating officer.

Gaulin, however, will take over the chief executive's office by the end of 1998 and will become chairman of the board three years after that.

The announcement Monday followed days of heavy trading, with many investors thinking Diamond Shamrock was poised to make a deal with Atlantic Richfield Co. Hemminghaus and Gaulin refused to discuss those rumors.

The deal is expected to close at the end of this year, pending regulatory and shareholder approvals.

CAPTION(S):

2 Photos

Photo: (1--Color) A car leaves a Diamond Shamrock statio n in Dallas.

(2) San Antonio-based Diamond Shamrock will merge with Ultramar Corp.

Associated Press