An $81 billion merger between Exxon Corp. and Mobil Corp. will win the blessing of federal regulators Tuesday, according to sources, ending a year of intense negotiations and creating a new colossus among the handful of oil superpowers that dominate the industry.
Federal Trade Commission staff members are expected to recommend the approval of the merger early Tuesday, with the agency's five commissioners voting in favor of the deal later in the day. The combined company will be called Exxon Mobil Corp.
The FTC's action will set in motion a sweeping realignment of 120,000 employees at both companies, including the 2,000 at Mobil's headquarters in Fairfax. Because the new company will be based in Irving, Tex., hundreds of local Mobil employees may have to move to Texas or accept a buyout. At least 9,000 jobs are to be eliminated at the two companies, where executives have spent months evaluating employees at all levels.
The merger will alter the gasoline marketing landscape in the Washington area and other parts of the country where regulators feared that an Exxon-Mobil combination would have the power to increase prices at the pump.
The FTC would allow the oil companies to complete the merger while leaving some key details unresolved. Chief among them: Who will buy the 2,400 service stations that the companies must divest, including the 130 Mobil stations in the Washington area?
Though Exxon and Mobil fought with the agency for months over the size of the divestiture--the largest in FTC history--the companies ultimately agreed to sever ties with about 15 percent of the retail stations. The merger is expected to save the two companies nearly $3 billion in operating costs over the next three years and strengthen oil exploration and production efforts, analysts said.
Consumers may not notice a change in the divested stations, which include about 1,220 stations in the mid-Atlantic region, 520 in New England, 360 in California and 300 in Texas, both company-owned and leased sites. Washington area Mobil stations will be sold, but the new station owners will have the right to keep the Mobil brand, signs and credit cards for up to 10 years. Gasoline will be supplied by the new owners but may continue to be treated with Mobil additives.
The arrangements could add several cents to the price of a gallon of gasoline, area service station dealers have warned.
The Exxon-Mobil deal comes during a period of rapid oil industry consolidation, which has included the merger of British Petroleum PLC with Amoco Corp.; BP-Amoco PLC's proposed merger with Atlantic Richfield Co.; and the combination of refining and marketing operations by other companies, including Shell Oil Co. and Texaco Inc.
The FTC may find separate buyers for the Exxon stations to be divested in New England and the Mobil stations to be sold in the mid-Atlantic region. Among the potential buyers are Tosco Corp., Amerada Hess Corp., Getty Petroleum Marketing Inc. and Gulf Oil L.P., according to sources familiar with the discussions.
Tetco Inc., a San Antonio company that operates 318 stations under the Mobil brand, is expected to take over Mobil's 300 stations in Texas. Sun Oil Co., Valero Energy Corp. and Tesoro Petroleum Corp. are among contenders to buy Exxon's stations in California.
The merger could spark litigation by some independent Exxon and Mobil service station dealers who worry that their rents will rise under new ownership and who want to buy the stations themselves.
Agency officials and the companies have reportedly attempted to fashion a deal that would withstand legal challenge. But Ron Harrell, who heads a group of service station operators from Connecticut to the mid-Atlantic, said operators have already set aside more than $100,000 for litigation, under a federal law that limits the freedom of oil companies to buy and sell their franchised stations.
Harrell and other owners are likely to find allies among several state politicians. Attorneys general in Connecticut, New Hampshire and perhaps elsewhere are expected to decline to sign on to the deal, though it is unlikely that even a handful of states could assemble the legal muscle to effectively challenge its terms. Some attorneys general are concerned about the anticompetitive effect of a combined Exxon-Mobil company and are worried that the companies' local franchise dealers could be forced out of business by the deal.
"To face reality, a single state or even a couple would be a very small opponent in so large a deal," said Richard Blumenthal, Connecticut's attorney general. "So we have no present plans to block the merger, but we also won't join it, and we think that by not joining it we may help our dealers as well as states in future challenges."
Tuesday's expected announcement would end nearly a year of haggling between the FTC and Exxon and Mobil and reunite the largest blocks of Standard Oil Co., the monopoly that was shattered by trustbusters into competing companies in 1911.
Exxon and Mobil announced their intention to merge last December and spent the ensuing months compiling countless boxes of internal documents in a sprawling and expensive effort to assuage the fears of regulators. Dozens of associates from five local law firms combed Exxon and Mobil offices across the country for relevant information; the photocopying bill alone ran into the millions of dollars.
Although Exxon and Mobil announced their merger at a time of historically low crude oil prices, consolidation in the oil industry is being driven by other factors. Even giant oil companies such as Exxon have faced increasing competition from much larger state-owned oil companies, such as Saudi Aramco, Mexico's Pemex and Venezuela's PDVSA. That competition is especially intense in exploration and petroleum, where huge costs limit even the largest company's ability to compete for resources in more than a handful of locations worldwide.
"I think that the mergers are a way to get scale to take on the huge risks of 20-year multibillion-dollar projects, to manage costs in the face of price volatility and to deliver the stock performance that the pension funds and mutual funds demand," said Daniel Yergin, head of Cambridge Energy Research Associates and author of "The Prize," a definitive history of the oil industry.
For many of the companies' combined 120,000 workers, the merger could mean personal and professional upheavals, as jobs are shifted among Texas, Fairfax and other company sites. "I'm sure they already have all the blocks filled" with the employees the managers want to keep, said a 29-year-Mobil veteran, who requested anonymity.
Mobil has designed a severance package that could reward the most senior employees with as much as two years' pay. But employees who refuse transfers out of the area may not be eligible in some circumstances, some employees said. "The people who may not have a job are concerned," knowing that even with a buyout they may well have to look for new work, the veteran Mobil employee said.
Staff writer Ken Bredemeier and staff researcher Madonna Lebling contributed to this report.