Exxon Corp. purchased more than $1 billion of Reliance Electric Co. stock yesterday and announced that it was halting negotiations with the Federal Trade Commission aimed at settling the government's effort to block the transaction.
The merger, which would be the largest cash takeover in history, cannot be completed until a federal judge issues a decision on the FTC's attempts to block it on the ground that it would remove Reliance as a competitor in the electric drive motors business.
Exxon officials had said they would delay the purchase in hopes that a settlement of the case with the FTC could be worked out. But Reliance forced the issue, filing suit last week asking that the purchase proceed immediately.
Although the total purchase price of Reliance's outstanding shares would have been $1.17 billion, yesterday's transaction involves $1.087 billion because some Reliance shareholders withdrew their stock from purchase.
The purchase involves 14.7 million shares of Reliance common stock -- 93 percent of the outstanding shares -- and 142,000 shares of preferred stock, which is about 75 percent of the outstanding shares.
Reliance officials in the company's Cleveland headquarters said they will withdraw their suit today.
U.S. District Court Judge John H. Pratt has ruled that the acquisition could go forward only under a "hold separate" order that would allow Exxon to sell Reliance at a later date.
Pratt now must rule on whether an Exxon proposal to adopt a licensing scheme for the motor parts technology solves the FTC's antitrust objections.
Exxon officials maintain that the oil company's purchase is designed to aid it in developing an energy-saving technology by controlling motor speeds.
However, the FTC contends that Exxon already had begun efforts to develop the electric motor speedcontrol devices, although Exxon denies the assertion.
The motor parts technology that is the basis for the Exxon purchase is designed to regulate the speed and voltage of industrial motors. Its promoters maintain that electric motors could be made more energy efficient by successful production and marketing of the parts.
Exxon Chairman C. C. Garvin Jr. said in a statement that the company would buy the Reliance stock because negotiations with the FTC staff "didn't lead to a rapid settlement."
In addition, Garvin said, delays in buying the stock might add to the number of stockholders who have withdrawn their stock from the depository.
FTC officials insisted that they "remain willing to enter discussions" with Exxon representatives about settling their case.
The FTC and Exxon filed final court papers in the case last Friday, although Pratt has no deadline for issuing a ruling.
"Exxon's objective now is that the obstacles to the rapid commercialization of ACS (alternating current synthesizer) technology contained in the present court order be removed," Garvin said.
Exxon considers the motor technology vital because the company believes its successful development could save the nation about a million barrels of oil a day by 1990.
"As has been stated many times, Exxon doesn't have the manufacturing and marketing expertise to achieve rapid commercialization and therefore decided to acquire Reliance," Garvin said.