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Exxon-Mobil Passes First Hurdle, But the Real Test Lies Ahead

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 already merged."

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."

John Norris

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