Exxon Corp. and Mobil Corp. formally announced their blockbuster merger yesterday, saying they intend to reunite two pillars of the fabled Standard Oil monopoly and surpass General Motors as the biggest corporation in the United States.
The proposed combination, disclosed last week, faces hurdles from U.S. and European regulators as well as protests by environmentalists and consumer groups.
But Exxon Chairman Lee Raymond said he's confident about completing the merger in mid-1999.
"There are some very clear advantages," Raymond said. "The merger will. . . allow us to compete with the recently combined international oil companies as well as the state-owned companies that continue to expand outside their home base."
Exxon, the No. 1 U.S. oil company, agreed to pay $79.3 billion in stock and assumed debt for Mobil, No. 2, based on yesterday's closing stock prices.
It would be one of the top corporate acquisitions ever and would produce the world's largest energy company, with $200 billion in annual sales. Carmaker General Motors booked $178 billion in sales last year.
Shares of Mobil were down $2.25 yesterday to $83.75, while Exxon fell $3.375 to $71.625.
Mobil is based in Fairfax, Va.; Exxon in Irving, Texas. The combined company would be named Exxon Mobil Corp. and based in Irving.
Their deal comes amid a stream of recent corporate mergers. But this one stands out, not only for its size but for its cultural resonance and criticism from groups usually unconcerned with Wall Street.
Mobil and Exxon were once important pieces of John D. Rockefeller's Standard Oil trust, broken up in 1911 by the government for dominating the market.
By proposing to partially re-create a symbol of monopoly and business rapacity, the companies may fuel the continuing debate about corporate size and power.
"We're talking about putting back together Standard Oil," said Wenona Hauter, director of Public Citizen's Critical Mass Energy Project. "Consumers are eventually going to pay the price for this, since it induces noncompetitive behavior."
Another factor is the Exxon Valdez oil tanker spill in the 1980s, one of the best known environmental disasters in recent years. Environmental groups also opposed the merger yesterday.
Mobil and Exxon officials promised to keep environmental and health concerns as top priorities. And they took pains to point out that this is not 1911, that together they control only about 13 percent of the country's gas pumps. There are about 48,000 Exxon and Mobil gas stations worldwide, about a third of them in this country.
Even so, analysts expect the sale not only of numerous gas stations but also of refineries before regulators in the United States and Europe are satisfied that consumers won't be hurt.
"I would think that there would be an effort to sell some refineries," said Howard Bonham, president of a Houston oil-investment research firm that bears his name. The likeliest buyers, he said, would be smaller, independent oil concerns such as Baltimore's Crown Central Petroleum Corp.
"I can't imagine that the Justice Department would allow a combination and then a closing-down of anything that was in competition between the two companies."
In addition, Connecticut Attorney General Richard Blumenthal said yesterday that he would help lead a multistate inquiry into the proposed merger to ensure the deal does not stifle competition and cause gasoline prices to rise.
Exxon and Mobil's announcement brings more turmoil to the oil business, which is searching for new ways to cut costs after being hammered by falling prices. British Petroleum is buying Amoco for $58 billion; yesterday France's Total SA said it would buy Belgium's Petrofina SA for $11.8 billion.
As if to underscore the industry urgency, yesterday crude oil prices fell below $11 per barrel to prices unseen since the early 1970s. Prices are being driven down by a global economic slowdown and by the inability of oil-producing countries to agree to production limits.
"At that price, nearly all of U.S. production is uneconomical," said Scott Hickman, president of a petroleum engineering firm in Midland, Texas. "Until last week, I was not aware of people actually shutting down production" of oil wells.
"Now, in this last week, with the price of oil the way it is, I think people will actually be forced to go out there and turn the switch."
Mobil and Exxon executives denied that falling prices forced their merger.
"Today's announced combination does not mean that we could not survive on our own," said Lucio Noto, Mobil's chief. "We did not run into this arrangement."
But struggling oil companies need to do something, industry analysts said, and cutting costs through mergers is the next logical thing to do.
"Companies have already shut down refineries," and the remaining units operate relatively efficiently, said Kate Warne, an oil analyst for Edward Jones, a St. Louis-based stock brokerage.
"I see this as a continuation of what you had already seen happening internally at these companies. The price pressures have shortened the time line."
As usual in corporate mergers, cost-cutting means layoffs and other downsizing. The Mobil-Exxon combination should generate $2.8 billion in annual cost savings and increased revenue by 2002, Raymond said, and will eliminate 9,000 jobs.
At least some of those layoffs are expected to come at Mobil's headquarters in Fairfax, which will become the seat of the combined companies' "downstream" operations of refineries and marketing. Exploration, drilling and other "upstream" operations will be run out of Houston, as well as chemicals.
Executives said they'll keep the Mobil and Exxon brand names, although they haven't worked out details such as whether to combine their credit-card operations.
Exxon shareholders will own about 70 percent of the combined company; Mobil 30 percent. Each Mobil share will be converted into 1.32015 shares of Exxon.
Pub Date: 12/02/98