Exxon-Mobil Merger Passes First Hurdle

Exxon and Mobil took an eagerly anticipated step toward completing their merger yesterday as shareholders for both companies approved the combination. Mobil received 98% shareholder approval for the deal and Exxon received 99%. The votes were held at separate hotels in Dallas, TX.

"This is another major step in the process of creating the new company," said Lou Noto, Mobil's CEO. "I know that Mobil's board of directors made its recommendation regarding the merger very thoughtfully, recognizing both the strength of the company today and the challenges we will face in the future. Our shareholders today voiced their strong support for the board's recommendation."

One challenge facing the two companies is completing the merger. Many in the industry viewed today's votes as foregone conclusions. One source called the votes "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.

Exxon shareholders also approved amending Exxon's charter to increase the number of authorized shares of common stock from 3 billion to 4.5 billion shares.

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 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."

He added that other "mega-mergers" will probably not occur despite the constant rumors. Earlier this month Chevron and Texaco were said to be in merger negotiations, and their stock prices fluctuated violently (See Daily GPI, May 17). Yet those rumors have dissipated, mainly due to personality conflicts between the heads of the two companies and because of Texaco's involvement in joint ventures with Shell, another Chevron suitor.

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