E. I. du Pont de Nemours & Co., the nation's biggest chemical concern, agreed today to acquire Conoco Inc., the ninth-biggest oil firm, for $7.3 billion in cash and stock. The merger would be the largest in corporate history.
The agreement is designed to thwart an unfriendly attempt by Seagram Co., the Montreal-based distiller, to acquire a 41 percent controlling interest in Conoco. A Seagram spokesman said the company had no comment on the proposed friendly merger between the giant U.S. oil and chemical companies.
The boards of directors of Du Pont and Conoco already have approved the merger but it still requires a vote by Du Pont stockholders.
It will be the first large corporate combination to be studied for possible antitrust implications by the Reagan administration, whose top officials already have stated that they do not necessarily oppose mergers simply because they would create giant enterprises.
A Du Pont-Conoco combination would create the nation's seventh-largest industrial corporation in terms of annual sales. [Stock market reaction and profiles of the companies are on Page D6].
Both companies said their lawyers have determined that there is no problem under U.S. antitrust laws.
But analysts on Wall Street said a $1 billion joint venture between Conoco and Monsanto, another giant chemical company, probably would have to be canceled if Du Pont and Conoco do mere because of antitrust restrictions.
Either the Justice Department or the Federal Trade Commission is required to review all big mergers.A spokesman for Justice said that it would routine for one of the two agencies to look at this merger.
Du Pont lawyers met with Richard Favretto, deputy assistant attorney general, this morning to discuss the proposed combination.
Du Pont proposed today to spend $3 billion to buy 34.4 million of Conoco's outstanding shares (about 40 percent) at $87.50 a share and to issue 84 million new shares to acquire the remaining 52 million Conoco shares, exchanging 1.6 shares of Du Pont stock for each share of Conoco.
Seagram had offered to pay $73 a share for 35 million Conoco shares.
The estimate that the transaction is worth $7.3 billion is based on Du Pont's closing price on the New York Stock Exchange last Thursday of $51.52 a share. Today Du Pont stock declined to $46.375 on the New York Stock Exchange and was the most actively traded stock. Conoco, on the other hand, rose from $69.625 to $76.50. Trading of both stocks was halted until after noon.
With sales of $18.3 billion last year, Conoco is the 14th-biggest industrial company in the country. Du Pont is smaller, although it will be the surviving company (Conoco will become a wholly owned subsidiary if the deal goes through). With sales of $13.7 billion, Du Pont is the 15th biggest industrial company, just behind Conoco.
Nearly 70 percent of the Conoco's income comes from exploration, production and sales of oil and gas products. About 10 percent of its business comes from sales of petrochemicals, the only area of major overlap with Du Pont. The rest of Conoco's income comes chiefly from coal. It is the nation's second-largest coal producer.
Du Pont, a major chemical and chemical products company, also makes electronics, instruments, agriculture and health care products.
The two companies began merger talks on June 25, the day that Cities Service Co. backed out of a tentative merger with Conoco. The final deal was not reached until 2 a.m. today, sources said.
The battle with Seagram is Conoco's second struggle with a Canadian company this year. Last month, Dome Petroleum, a Calgary producer, bought 22 percent of Conoco's shares and then forced Conoco to swap its Canadian oil and gas holdings for those shares.
Conoco has been battling the Seagram offer both in the courts and in letters to stockholders. Last Thursday, Seagram filed a counterclaim to Conoco's suit, arguing that Conoco Chairman Ralph Bailey and the board of directors have violated securities laws in an attempt to prevent Seagram from acquiring controlling interest in the company.
Because ownership of stock in most U.S. companies is widely dispersed, a 41 percent holding of Conoco stock would give Seagram effective control of the company without a majority interest.
A recent drive in Canada to Canadianize its oil and gas industry has sparked interest on the part of many Canadian companies to buy up the Canadian assets of foreign oil companies, although Seagram's interest in Conoco is not related to Canadianization.
Canadian companies get breaks from the Canadian government that foreign-owned concerns do not, and those breaks sparked Dome's assault on Conoco. Cities Service was contemplating a merger with Conoco because Nu-West Group Ltd. of Alberta wants to acquire enough Cities Service stock to force that U.S. company to give up its Canadian assets.
Conoco and Cities Service had hoped to create a firm big enough to ward off the Nu-West and Seagram bids. Cities Service backed off when Seagram announced its tender offer to Conoco shareholders.
Analysts said that over the long run the acquisition of Conoco would be good for Du Pont because it would give it a captive source of oil. Du Pont buys about 360,000 barrels of oil each day to feed its chemical operations, according to Larry Wachtel of the brokerage firm Bache Halsey Stuart Shields Inc.
But Wachtel said that in the short run, Du Pont's assimilation of a huge company will cause it problems, diverting management attention from chemical operations at a time when Du Pont seems to be turning around its lackluster fibers operation.
Du Pont said it has secured bank loans for the cash portion of the proposed merger, but analysts said that the loans could easily be repaid if the combined company then sold Conoco's Consolidation Coal Co., the nation's second biggest coal producers.