$250bn Exxon-Mobil deal is biggest merger in history

Michael Harrison
Wednesday 02 December 1998 01:02 GMT

THE MAP of the world oil industry was redrawn yesterday after Exxon unveiled details of its $250bn merger with Mobil, and Total of France and Belgium's Petrofina joined forces in a $39bn European merger.

Exxon Mobil represents the biggest merger in history and will create the world's pre-eminent oil major with revenues of $200bn, 123,000 employees and worldwide production of 2.5 million barrels of oil a day.

The merged US oil giant forecast that it would generate savings of $2.8bn after two years and shrugged off fears that regulatory opposition could yet scupper the deal.

Exxon Mobil estimated that rationalisation costs would reach $2bn but it declined to say how many job losses could be entailed. In Britain, where Exxon operates under the Esso name, the two companies employ a total of 4,100 staff.

However, shares in both Exxon and Total, the dominant partners in the respective mergers, fell on confirmation of the two deals as analysts questioned whether they were overpaying at a time of historically low oil prices. Exxon shares fell 5 per cent while Total shares took a battering on the Paris bourse, crashing by 8 per cent as the market opened. Brent crude slid to $10.43 a barrel.

Analysts and oil industry observers have warned that Exxon Mobil will have to overcome serious competition concerns both in the US and Europe, where Mobil already has a joint venture with BP covering 6,000 petrol stations.

European Union regulators are expected to force Exxon Mobil to unravel the tie-up with BP. This could result in BP buying back Mobil's 30 per cent stake in the $5bn joint venture at a knock-down price.

Analysts said Exxon Mobil could also be forced into heavy disposals in the US, where it dominates the petrol market, particularly on the West Coast.

However, Exxon Mobil said it did not expect any big anti-trust problems. It added that in the US it would be of a similar scale and size, both nationally and regionally, as other downstream joint ventures such as the BP-Amoco merger.

"This will be a company with a market capitalisation of $250bn. It can afford to throw the regulators a crumb of say $5bn in asset sales or divestments," said Fadel Gheit, an oil analyst at Fahnestock in New York.

The Exxon Mobil deal reunites two of the seven sisters orphaned by the enforced break-up in 1911 of John D Rockefeller's United Standard Oil Trust. Exxon shareholders will own 70 per cent of the enlarged company and the chairman and chief executive of the combined group will be Exxon's current chairman Lee Raymond.

Mobil shareholders will be left with 30 per cent of the merged group and are being offered 1.32 Exxon shares for each Mobil share they own. The deal values the smaller oil company at $76bn.

Exxon, which was advised by the investment bank J P Morgan, estimates that the merger will improve its return on capital by 4 per cent within three to five years.

The main elements in the $2.8bn cost-saving programme are $1.1bn of savings through rationalisation of production programmes, $750m through "organisational efficiencies" and $300m each through the adoption of best practices and a more selective exploration programme.

In the UK, Esso and Mobil together operate about 2,600 petrol stations and have a combined market share of 25 per cent. Esso employs 2,500 staff and has a further 780 employees at Exxon Chemicals. Mobil employs 1,300 staff in its oil and gas exploration division and a further 500 in the joint venture with BP.

Total Fina will become the world's sixth largest oil group with revenues of $53bn and net income of $1.9bn. However, analysts criticised the price Total was paying.

In Britain, Total and Fina have around 960 petrol stations and a combined market share of about 8 per cent. The two companies operate a refinery together in Immingham on Humberside.

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