Exxon/ Mobil merger doubt

European Commission could block plan for huge consolidation in oil industry

THE planned takeover of Mobil, the US oil and gas group, by Exxon, the world's largest energy company, could founder due to opposition from the European Commission to what one senior Brussels official said may prove to be "a merger too far".

Shares of the two companies surged after they confirmed they were in talks last week. On Tuesday, senior executives of the two companies are expected to meet to consider an agreement. Combined the two would be worth $247bn (pounds 149bn), making the world's biggest industrial company. "We have cleared major oil business transactions in the past but in every sector there is always a merger too far," said a senior Commission official.

The planned alliance was prompted by last August's announcement that British Petroleum would buy the US oil firm Amoco for $63.8bn. On Thursday, BP said it expected Commission approval for that deal in December after it offered to modify the two companies' fuel additives business.

Analysts and lawyers are expecting the European Commission to require Exxon and Mobil to sell off large parts of their retail and refinery businesses in Europe and the US. The deal would also face stiff opposition from the Federal Trade Commission (FTC), the US anti-trust regulator, which under the Clinton administration has examined large corporate mergers with a vigour not seen since the 1970s.

"It's a test case" said Frederick Leuffer, an energy analyst at Bear Stearns in New York. "If the FTC let this one go through without major divesting, then everything would be fair game. Why couldn't General Motors merge with Ford?"

The Exxon/Mobil deal faces particularly strong opposition from European oil companies such as France's Total and ENI of Italy, which are likely to lobby hard against Brussels approval. "It's like the elephant marrying the brontosaurus," said one chief executive of a European oil company.

Under European Union competition rules, the Commission can effectively veto transactions that result in or strengthen a dominant position in EU markets even if the companies are from outside the EU. The chairman of BP, Peter Sutherland, is a former EU competition commissioner so BP and Amoco had a better understanding of the workings of Brussels than Exxon and Mobil.

This year, the Commission has put the brakes on mega-merger fury in two other sectors, accountancy and publishing. In February, accountancy firms KPMG Peat Marwick and Ernst and Young cancelled plans to create the world's biggest accountancy and consulting firm, citing regulatory hurdles from Brussels as the reason. Similarly Anglo-Dutch publishing company Reed Elsevier abandoned its proposed $9bn takeover of Wolters Kluwer.