Exxon, Mobil Reportedly Talk Mega-Merger
In what would be the world’s largest industrial merger, energy titan Exxon Corp. is reported to be in talks to acquire competitor Mobil Corp. and may be close to announcing a deal.
Exxon, the nation’s biggest oil and gas exploration and production company, would pay at least $61 billion for Mobil, the No. 2 U.S. oil company, according to today’s editions of the Financial Times. The buyout talks are in an “advanced” stage and a deal might be announced as early as next week, the London-based newspaper said, citing people close to both companies.
Wall Street took the rumors seriously Wednesday, sending Mobil shares shooting up $3.44, or nearly 5%, to close at $78.38 on the New York Stock Exchange. Exxon was unchanged at $72.69.
Representatives of Exxon in Irving, Texas, and Mobil in Fairfax, Va., declined to comment on the reports.
Such a transaction would create the world’s largest publicly traded oil company, surpassing Anglo-Dutch giant Royal Dutch/Shell Group in both assets and oil and gas reserves. It also would cobble together the second-biggest marketer of gasoline in the United States.
The combined company would employ 123,000 people in more than 125 countries. But layoffs would undoubtedly follow.
An Exxon-Mobil match “would be the best, bar none, global oil concern,” said Fadel Gheit, senior energy analyst at Fahnestock & Co. in New York. “It would be the Microsoft of the oil business.”
In California, where each company operates one refinery, Exxon and Mobil together would rank third in gasoline sales with about 18.5% of the market, said Trilby Lundberg of Lundberg Survey Inc., a gasoline market research company in Camarillo. Los Angeles-based Atlantic Richfield Co. and Chevron Corp. are first and second, respectively, in the state.
“If this is true, the flying red horse might have a tiger by the tail,” said Lundberg, referring to Mobil’s famous Pegasus logo and Exxon’s well-known tiger. Nationwide, the two companies would hold about 14% of the gasoline market, she said, behind the giant Shell/Texaco marketing operation and ahead of British Petroleum Co. and Amoco Corp., which are completing their own merger.
One reason for combining to get larger is the scale of oil operations these days. Big money and great aggregations of skilled people and know-how are needed for new energy development, whether in unsettled lands of the former Soviet Union or the Middle East or in Venezuela, Canada and Australia, where usable oil is being developed from heavy-tar deposits.
Low oil prices are also a big factor pushing companies to consolidate. The continued weakness in prices--which have fallen below $12 a barrel this week--reduces the returns on the enormous investments necessary to develop petroleum deposits. Merging would give the resulting giants a broader range of operations from which to generate profits and allow them to cut costs by streamlining administrative operations.
The current price of oil is lower than it was back in 1971 to 1973, allowing for inflation. That was when the Organization of Petroleum Exporting Countries, partly provoked by tensions in the Middle East, took control of oil reserves away from multinational companies and raised prices.
As prices have stagnated, thanks in part to reduced demand from recession-burdened Asia, even large companies have been forced to combine into “supermajors,” said analyst Douglas Terreson of the Morgan Stanley, Dean Witter investment firm.
Speculation of mergers in the oil industry became widespread after British Petroleum agreed in August to acquire Chicago-based Amoco. Mobil, with $65.9 billion in 1997 revenue, was often mentioned by analysts as a potential acquirer of Chevron, Arco or Texaco Inc.
For Exxon to attempt acquisition of Mobil, or any other large company, is doubly significant, oil experts say. A merger would establish it once again as the world’s largest publicly traded oil company. In 1997, Exxon had revenue of $137.2 billion, according to authoritative trade publication Oil & Gas Journal. Royal Dutch/Shell had $171.7 billion.
If a merger is completed, the resulting company will have roughly $180 billion in annual revenue, a massive 10 billion barrels of oil reserves and roughly 60 trillion cubic feet of natural gas.
It would also reverse one of the first and most important actions of U.S. antitrust law. The combination would reunite the main company of the old Standard Oil trust--Exxon’s former name was Standard Oil Co. (New Jersey)--with Standard Oil Co. N.Y., a smaller member of that trust, which was broken up in a federal antitrust suit in 1911.
A merger of the two giants would probably face thorough antitrust scrutiny. If the government approves, it would be a sign that Washington recognizes the need for U.S. companies to operate on a global scale, oil experts said.
The companies’ geographical operations would be complementary. Exxon derives most of its revenue and profit from outside the United States, producing oil and gas in the Middle East and Europe and marketing it worldwide, while Mobil gets almost half its revenue in the United States.
But for now, the two oil giants are not commenting publicly.
The Financial Times did not provide the terms for the Exxon-Mobil deal but said it would probably surpass the value of the BP-Amoco merger, the largest industrial deal in history.
Exxon has a market value of about $177 billion, while Mobil is worth about $60 billion, based on Wednesday’s stock market close.
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Associated Press and Bloomberg News were used in compiling this report.
