Exxon, Mobil to Announce Today Deal to Merge
Exxon Corp. and Mobil Corp., the nation’s two largest oil companies, plan to announce today that they have agreed to merge into a new corporate giant, a deal that would shift the balance of power in the oil industry.
Two sources close to the talks, which were first disclosed last week, said the deal would be unveiled today, after the companies’ boards formally approve it. The purchase price is likely to be above $70 billion, with several sources speculating that Exxon would pay approximately $100 a share in cash and stock for Mobil shares, or about $78 billion.
“It’s going to be a historic day in the oil industry,” said Daniel J. Yergin, who heads Cambridge Energy Research Associates in Massachusetts and wrote one of the best-known books about the industry, “The Prize.”
The new company would have nearly 16,000 retail outlets in the United States, worldwide oil and gas reserves of 20.78 billion barrels of oil equivalent, and total sales in 1997 of nearly $180 billion. It would also create the largest company in the United States, surpassing General Motors Corp.
The stocks of both companies have soared since rumors began swirling last week that they were discussing a merger. Monday, Mobil’s stock closed unchanged at $86, and Exxon’s stock closed at $75, up 63 cents.
The agreement--effectively Exxon’s purchase of Fairfax, Va.-based Mobil--comes as oil prices hover near inflation-adjusted lows and oil-producing countries appear unable to cut production to prop up prices.
The Exxon-Mobil merger essentially would leave three corporations--Exxon-Mobil, Royal Dutch/Shell Group, and the result of the pending merger of British Petroleum and Amoco Corp.--far larger than any of their competitors, with control over vast oil reserves and tens of thousands of gasoline stations.
In creating the world’s largest oil company, the merger also would rejoin two of the biggest pieces of the Standard Oil empire that was broken up nearly nine decades ago, and it is likely to face tough scrutiny from federal regulators.
Even if regulators do not force the new company to sell or spin off assets, Wall Street analysts expect the giant to shed more than 10,000 jobs. Analysts have said the merger might result in savings of as much as $4 billion a year.
Two other oil companies, Total of France and Petrofina of Belgium, are also expected to announce today that they will merge. Some news reports put the value of that merger at $9.5 billion and said it was expected to produce savings of $1 billion a year.
But another deal fell apart Monday. Royal Dutch/Shell Group said it had broken off talks with Texaco Inc. about combining refining and marketing businesses in Europe. Mobil and BP formed such a venture last year.
The momentum in the industry may have been too strong to resist, said some industry analysts. “We could wake up a year from now and have half as many players in the industry,” said Matthew Simmons of Simmons & Co. International, an investment banking firm in Houston that specializes in mergers and acquisitions in the oil-field services industry.
Any deal would face a long gantlet of antitrust scrutiny. The Federal Trade Commission, which will evaluate the proposal, has been increasingly jittery about mergers in the oil industry and is all but certain to demand divestitures of refineries and gas stations. Attorneys general, particularly in states where Exxon and Mobil stations dominate the retail market, will study the merger as well. Some might ultimately sue to block the deal. European officials have already indicated that they will closely examine the merger.
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* OIL DROP: The price of crude oil fell to historic lows to close at $11.22 a barrel. A1
