FTC Approves Merger of Giants Exxon, Mobil

The Federal Trade Commission approved the $80-billion merger of Exxon Corp. and Mobil Corp. on Tuesday, but only after extracting record concessions from the two oil giants that hint of high hurdles ahead for the pending merger of BP Amoco and Los Angeles-based Atlantic Richfield Co.

The FTC is requiring Exxon and Mobil to sell 15% of their gasoline stations and other assets worth a total of about $2 billion, including the Exxon refinery in Northern California and all of Exxon’s 360 California gasoline stations. As a result of the settlement, California’s gasoline market will gain a major new competitor because the refinery and service stations must be sold to a single buyer acceptable to the FTC and the California attorney general’s office.

“This is just the first step in a long road to restructuring the California gasoline market to be more consumer-friendly, but it’s an important one,” Atty. Gen. Bill Lockyer said.

Exxon and Mobil announced that they had accepted the conditions placed on their union and immediately closed the transaction, officially becoming Exxon Mobil Corp. and, in the process, the world’s largest investor-owned oil company.

“The merger will allow Exxon Mobil to compete more effectively with the recently combined multinational oil companies and the large state-owned oil companies that are rapidly expanding outside their home areas,” said Exxon Chairman Lee Raymond, who is chairman and chief executive of the merged company based in Irving, Texas.

Although the scope of the concessions is greater than Exxon and Mobil had anticipated, the divestitures represent a tiny fraction of their combined $138 billion in assets, Raymond said.

On the New York Stock Exchange, Exxon’s stock slipped 6 cents to $79.31 a share, and Mobil gained 81 cents to close at $104.31 a share.

Exxon Mobil must sell 2,431 gas stations in California, the Northeast and mid-Atlantic states, Texas and Guam; the Exxon refinery in Benicia, near San Francisco; Mobil’s 3% share of the key trans-Alaska pipeline; the West Coast jet-fuel business; and some other assets. Exxon Mobil has nine months to complete the process for most of the assets but will get an extra three months for the California refinery and gasoline stations.

“This settlement should preserve competition and protect consumers from inappropriate and anti-competitive price increases,” said FTC Chairman Robert Pitofsky. Without the divestitures, he said, the merger could have substantially increased prices at the pump in California because only seven companies sell 95% of the state’s gasoline.

The asset sales will leave Exxon Mobil in California with a refinery in Torrance and 712 Mobil stations around the state.

Many of the gasoline stations being divested in California and the rest of the nation are actually leased to dealers who will have the option of continuing to sell the Exxon or Mobil brand for up to 10 years.

The FTC has been concerned about the increasing concentration of the oil industry that began with the merger last year of British Petroleum and Amoco Corp., and “will review any future proposed mergers in this industry with special concerns,” Pitofsky and Commissioners Sheila F. Anthony and Mozell W. Thompson said in a statement.

The Exxon Mobil settlement signals a more aggressive enforcement policy by the FTC and other federal agencies, said Garret Rasmussen, a former FTC trial attorney who now specializes in antitrust law at the Washington firm Patton, Boggs.

“For the BP Amoco-Arco merger, it certainly means difficult sailing ahead,” Rasmussen said.

A spokesman for London-based BP Amoco, which proposed buying Arco in April for $27 billion, said: “We are confident we are going to have a deal.”

Arco’s preeminent position among California gasoline retailers will attract scrutiny, said Fadel Gheit, senior energy analyst for the investment firm Fahnestock & Co.

“The FTC will do something because they need their pound of flesh,” he said. “They want to prove to the public, ‘Look, we’re here to protect the public from the big, bad oil companies.’ ”