Outlook: Rockefeller's empire rises again

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The Independent Online
SLOWLY BUT SURELY, the disparate pieces of John D Rockefeller's Standard Oil Trust are being reunited, driven together by an historically low oil price and an overdose of the "me too" syndrome.

After BP-Amoco, two more of the the orphans spawned from the enforced break-up of Rockefeller's oil empire in 1911 are coming back under one roof. Exxon Mobil is the daddy of them all. Who knows, if Total and PetroFina looked hard enough, perhaps they too would find some Rockefeller blood in their veins.

The problem with "me too" mergers is that bidders generally end up overpaying in their anxiety not to be left behind by the industry consolidation that is happening all around them. Yesterday the judgement of the market was that both Exxon and Total, the dominant partners in their respective mergers, may have fallen into just that trap.

Shares in Exxon and Total both fell, in the case of the French oil company by a thumping 8 per cent. It is not hard to see why when Total is paying a 22 per cent premium to PetroFina's all-time high just as oil prices hit their all-time low in real terms. With Exxon Mobil, the picture is a little more complicated, since this merger does not create a new dominant force in the global oil industry, but merely extends Exxon's lead.

For that reason, the economies of scale on offer are not as great as in BP-Amoco, nor are the synergies as compelling. The regulatory risk, however, is much greater since Exxon Mobil faces extensive competition hurdles in both North America and Europe.

In terms of size, Exxon Mobil looks more like a Saudi Arabia or a Venezuela than a mere oil company. But the companies' own sums rather give the game away. BP-Amoco, with revenues of $100bn a year, reckons it will achieve savings of $2bn. Exxon Mobil, with revenues twice the size, only expects to squeeze out $800m more in the way of synergies than BP-Amoco.

This is before any forced divestments have eaten into the logic and the cost benefits of combining America's two biggest oil groups. In terms of enhancing shareholder value, it is hard to see how even the mighty Exxon can come close to BP-Amoco by swallowing up Mobil. But that may no longer matter. The question on the oil industry's lips now is how much longer Shell can withstand the temptation to join the merry-go-round.

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