Mobil Corp. as we know it ceased to exist yesterday after government regulators approved the company's $81 billion acquisition by Exxon Corp., reuniting the two largest pieces of the Standard Oil monopoly nearly 90 years after trustbusters split them apart.
The Federal Trade Commission, following an 11-month review, overcame its initial skepticism about the deal and blessed it, having forced the companies to shed as much as $2 billion in service stations and other assets. The commissioners concluded that while the two companies will make formidable allies, they will not be large enough in any single market to raise pump prices as they choose.
"This is a mega-merger by anyone's measure," said FTC Chairman Robert Pitofsky. "But while there's been a remarkable trend toward consolidation in this industry, the fact remains that the top four firms in this industry will have something like 42 percent of the refining and marketing capacity, a level of concentration that doesn't ordinarily trigger antitrust concerns."
At 12:55 p.m. yesterday, minutes after agency commissioners voted 4 to 0 to approve the merger, Mobil officially ended its existence with the filing of incorporation documents in New Jersey for a newly combined company to be called Exxon Mobil Corp. A mainstay of the Washington area economy, Mobil now begins the difficult process of melding its corporate culture into Exxon's, whose chairman, Lee R. Raymond, will head the new company. Mobil's chairman, Lucio Noto, will be vice chairman of Exxon Mobil.
Tomorrow the company will begin the downsizing that it promised investors would save the combined companies billions in the coming years.
The 2,000 employees in Mobil's Fairfax headquarters will soon learn which of them will be offered severance packages, which will stay put and which will be offered jobs in Texas and other locations where the two companies operate. Mobil's headquarters building on Gallows Road in Fairfax County will be the center of refining and marketing for the new company, which will be headquartered in Irving, Tex.
Analysts have predicted that Exxon employees will end up with 60 percent of the jobs at the newly created company, a figure that reflects the companies' relative size.
Raymond said yesterday the two companies were creating "the world's premier petroleum and petrochemical company" and estimated that savings from the merger would exceed the $2.8 billion over three years that the companies had originally anticipated.
The oil industry has been reconsolidating almost since the moment the Supreme Court shattered Standard Oil into more than 30 competing pieces in 1911, but the size of mergers has increased considerably in recent years. Regulators have reviewed these deals with increasing wariness--antitrust law, after all, was written largely with the oil industry in mind. But subtract the often emotional fears about the power of Big Oil and even the largest players can't match the market muscle of leaders in, for instance, the airline and steel industries, antitrust experts have concluded.
"These companies have only 2 or 3 percent of the world's oil reserves," Pitofsky said of the combined Exxon and Mobil.
Still, the agency remained convinced that there are high barriers to entry in the retail market and so insisted that the companies sell off stations in markets where it deemed the two combined would be too powerful. In California the FTC forced the divestiture of an Exxon refinery along with some 360 stations there to give the eventual buyer a chance to compete. The companies also agreed to sell oil storage terminals, interests in a pipeline and in specialty businesses.
That left two matters unresolved: how many stations would be sold and who would buy them. Negotiating those issues involved months of haggling, bluffs and posturing and cost the companies millions in lost savings and legal fees. According to sources familiar with the talks, Exxon and Mobil at first offered to divest a tiny fraction of their stations.
FTC staffers were unimpressed and by August they were so fed up that they threatened to block the merger by filing a lawsuit. Litigation would have been risky and was certain to delay the merger by years.
After a few weeks of mulling the terms, the companies offered up fewer than 2,400 stations and then urged the FTC to accept the counter-offer by Sept. 30, in time for third-quarter earnings reports. The agency was apparently unmoved by this deadline. In the weeks that followed, the distance between the two sides shrank, but by then the companies had a new problem: Pitofsky wanted to personally interview representatives of a number of the companies vying to buy the stations.
"This all went on for so long because Pitofsky had to interview every one of the potential purchasers," said an antitrust lawyer who declined to be identified. "He wanted to make sure these assets found a good home and it took forever."
That interviewing process is not over. Bidding for the stations continues and the FTC has retained the right to reject any of the candidates. In the Northeast and mid-Atlantic regions--where some 1,740 stations are up for grabs--the leading contender appears to be Tosco Corp., the nation's fifth-largest refiner and operator of Circle K convenience stores. Also in the running: Amerada Hess Corp., an oil company that is among the largest fuel suppliers in the New York area; and Irving Oil Co. of Saint John, New Brunswick, a Canadian gasoline retailer.
Tosco has grown rapidly by acquisitions, including that of Exxon's Bayway, N.J., refinery. Analysts said Tosco's previous dealings with Exxon might give it an edge in negotiations.
"They have the financial stability and ability to do this type of deal," said Christopher Stavros of PaineWebber Inc. Stavros also noted that Tosco would be a new competitor on the East Coast.
The question of who will win the bidding for these stations is generating anxiety among Exxon and Mobil dealers whose stations are being sold. Many fear their rents will skyrocket under new owners, and they are prepared to sue under federal legislation that requires that dealers be given the first chance to buy their stations when they are divested and the brand is changed.
Pitofsky said yesterday the agency would be looking out for the interest of the dealers as it reviews purchase proposals, including "whether there is an arrangement for the dealers . . . to acquire their own stations." FTC staffers also said the agency would attempt to satisfy itself that fees paid for the use of the Exxon and Mobil brand and proprietary gasoline additives "would not put the buyers or dealers at a competitive disadvantage."
Ron Harrell, a Washington area Mobil dealer who heads an association of dealers from Virginia to Connecticut who are concerned about the merger, said yesterday his organization will continue to monitor the divestiture process. The group has raised more than $100,000 in anticipation of filing a lawsuit, but Harrell said it was too soon to know whether that would be necessary.
"We'll certainly be very, very aware of what the transactions will be and stay right on top of it," he said.
Here is what the combined company will look like:
Name: Exxon Mobil Corp.
Headquarters: Irving, Tex.
Chairman and chief executive: Lee R. Raymond
Reserves: 21 billion oil-equivalent barrels (1 percent of world total)
Refining capacity: 5.4 million barrels per day (7 percent of world total)
Petroleum product sales: 8.1 million barrels per day (11 percent of world total)
Revenue: $147 billion**
Earnings: $8 billion**
Web address: www.exxon.com
*The companies say they will eliminate 9,000 jobs worldwide after merging.
**combined 1998 figures for both companies
SOURCES: The companies, Hoover's, Bloomberg News
Mobil and Exxon Divestiture
The Federal Trade Commission is requiring both companies to sell company-owned stations and to sever ties with independent franchise operators in these states, according to sources familiar with the antitrust agreement.
Mobil 1,220 D.C., Virginia, Maryland, Delaware,
Pennsylvania and New Jersey
Exxon 520 New York, Rhode Island, Massachusetts,
Vermont, New Hampshire and Maine
SOURCE: Federal Trade Commission
CAPTION: The merger will hit hardest in areas such as this one in Hartford, Conn., where the Mobil and Exxon stations face each other across the street.