Alarm at Exxon's $240bn Mobil merger

THE PLANNED $240bn merger between Exxon and Mobil is facing huge regulatory hurdles that could even scupper any deal, analysts and oil industry observers said yesterday.

Exxon, the world's biggest energy group, and Mobil, America's second biggest oil company, are in advanced talks and could announce their tie- up - the largest industrial merger ever - as early as next week.

However, analysts cautioned that the regulatory problems were immense, both in the US and in Europe where Exxon, which trades as Esso, would have to unravel Mobil's existing joint venture in refining and marketing with BP-Amoco.

A merger would give Exxon a huge share of the European petrol and lubricants market. It is already number one in the UK, number two in Germany and number three in France and would almost certainly be forced to divest Mobil's 40 per cent stake in the BP venture.

Rival oil industry executives also said that a combination of Exxon and Mobil would face a daunting struggle to get by anti-trust authorities in the US because of its market domination in petrol retailing, particularly on the West Coast.

Analysts meanwhile questioned the rationale behind a merger and the benefits that Exxon, already the world's biggest oil company, could extract from swallowing Mobil.

Alan Marshall, oil analyst at Flemings, said: "I am not wildly impressed by the idea. This deal would face far more regulatory hurdles than BP- Amoco, which would eat into the logic of the merger.

"Exxon would have to pay a premium but the lack of value-creating opportunities and the forced divestments could wash away any benefits it did get from the deal."

He also pointed out that the deal would be classified as a takeover because of the disparity in size - Exxon is capitalised at $177bn while Mobil is worth $61bn - meaning that Exxon would face a goodwill write-off running into hundreds of millions of pounds.

Analysts also doubted whether an Exxon-Mobil merger would yield the level of cost savings as BP-Amoco which is expected to produce efficiency gains of more than $3bn.

Some industry observers were speculating last night that the leaking of the Exxon-Mobil talks might have been a deliberate attempt to sabotage the merger. One observer said: "If this deal goes ahead, Mobil will disappear lock, stock and barrel, such is the dominance of the Exxon culture. That includes all Mobil's senior management. If there is someone in Mobil who does not like the idea then this is a perfect way of getting it out into the open so it can be strangled at birth."

Alternatively, the leak could have been a manoeuvre to boost Mobil's share price and hence strengthen its position when the split of shares in the enlarged company is decided.

Mobil shares are expected to rocket when New York opens today after the Thanksgiving holiday. Mobil stock rose by $3.375 to $78.375 on Wednesday as rumours of the Exxon merger began to circulate on Wall Street.

Outlook, page 21

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