Exxon-Mobil Passes First Hurdle, But the Real Test Lies Ahead
Exxon and Mobil took an important step toward completing their merger
last week as shareholders for both companies approved the combination.
But many industry observers viewed the votes as foregone conclusions. One
source called them "glorified rubber stamps." The real test will
come during the regulatory process when the transaction undergoes strict
Federal Trade Commission (FTC) and European Commission (EC) scrutiny.
Mobil said last week it expects regulatory approval from both the FTC
and EC by the end of the third quarter. The companies filed with the EC
in early May. One analyst, who wished to remain anonymous, said troubled
waters loom ahead.
"The merger is now moving on to the nitty-gritty, and it won't
be easy. One EC commissioner was overheard a couple of weeks ago saying
'Sometimes, there is one merger too many, even in the oil industry.' Eventually
will the two companies merge? I think they will. However, I give it over
50% odds that they don't get it done by the end of the third quarter."
He said both Exxon and Mobil know they are in for a fight and this knowledge
already caused the companies to push back their original end-date from
June to its present estimate in September.
The Exxon-Mobil combination is not the only energy company merger facing
bumps in the regulatory road. Last month, Alaska's state government hired
David Boies, the lead prosecutor in the Microsoft antitrust trial, to join
the team reviewing the BP Amoco-Atlantic Richfield (ARCO) merger. The two
companies are Alaska's largest oil producers, and state officials are worried
about the formation of a gigantic company that would discourage other producers
from operating in Alaska.
"This is a really big hurdle for [Arco and BP Amoco]," one
source said. "If they can make it happen, the merger would be a great
move. The question is: Can two companies join together if the end product
would dominate a service area? Alaska is right to be worried. A BP Amoco-Arco
combination would own the state."
Adam Sieminski, an analyst with BT Alex. Brown said the Alaska situation
can be worked out. "It's a matter of the parties sitting down and
figuring it out. Alaska's officials are not against the merger, they just
want to make sure BP Amoco agrees to adhere to certain rules. The more
important fact, I think, is that the two companies' downstream operations
are in no danger of regulatory problems."
Although the rumored Chevron-Texaco mega-merger is stalled right now,
it isn't dead either, said Sieminski. Earlier this month Chevron and Texaco
were said to be in merger negotiations, and their stock prices fluctuated
violently (See NGI, May 17). Yet those rumors
have dissipated, mainly because of personality conflicts between the heads
of the two companies and because of Texaco's involvement in downstream
joint ventures with Shell.
"It comes down to [those conflicts]. There has been a lot of talk
about these issues, and I get the feeling the talk might have lit a fire
under both parties to get a deal done. Chevron and Texaco have incentive
to pull it off. It would get them back in the ball game. People ask if
they are getting bigger just to get big? I think the two companies need
to get bigger if they want to compete with the other companies that have
A veteran industry executive, however, said Texaco's joint downstream
venture for refining and marketing oil with Shell essentially took them
out of play in the merger game. "Shell is running the joint downstream
venture. They're controlling that whole Texaco operation; they regard it
as theirs, and they won't want to let it go or turn it over to anyone else."