A federal judge yesterday gave Exxon Corp. a conditional go-ahead to purchase Reliance Electric Corp., the largest cash purchase in corporate history, but the restrictions were such that Exxon balked.
U.S. District Court Judge John H. Pratt ruled that Exxon may not take full control of Reliance until after further court hearings on the anticompetitive effects of the deal.
Faces with that, Exxon said yesterday it would delay the $1.17 billion purchase until after the hearings, scheduled to begin Aug. 27.
This leaves Reliance stockholders, who have agreed to sell their 15.1 million shares to Exxon, free to pull out of the deal after next Monday. An Exxon spokesman said the company does not expect many to withdraw.
Exxon declared its intention in May to buy Cleveland-based Reliance, a leading manufacturer of electrical equipment. Exxon claimed it needed the company to produce and sell a special electric motor control device that Exxon engineers had invented. Exxon officials said the device can save energy by helping motors operate more efficiently.
But the Federal Trade Commission objected to the merger on antitrust grounds, saying it would remove the oil company as a potential competitor in the field and inhibit competition in the industry.
Under the judge's order, Exxon could have bought Reliance but would have had to maintain the company "as a separate entity." The purpose of such a "hold-separate order," as it is called in legal circles, is to keep the parties in a merger relatively unentwined in the event a divestiture later is ordered.
The order would have prevented Exxon from, among other things, transferring its new motor technology to Reliance Electric, an arrangement that Exxon found unacceptable because it would frustrate Exxon's purpose in acquiring the company.
Judge Pratt scheduled a further hearing on an appropriate alternative to the segregation provisions, particularly on whether Exxon could proceed with the purchase and, in addition, grant licenses to other companies to manufacture its invention.
Exxon declared in a statement after the court's ruling that it "would be willing to accept an alternative along those lines."
Lawyers for Exxon previously had said in court that if an order were issued requiring Exxon to keep Reliance Electric separate, the company would drop its offer. But Exxon officials made clear yesterday they were not terminating their offer, just delaying a decision on the purchase of Reliance shares.
FTC attorneys yesterday indicated they would continue to oppose the merger, maintaining that if Exxon wants to enter the electric motor control market, it should do so on its own. As a general rule, the commission favors companies entering markets by starting new enterprises rather than by purchasing existing companies.
Despite claims by the FTC to the contrary, Exxon maintains it never seriously considered entering the electric motor industry from scratch.