Boards of Exxon, Mobil OK Merger: Completed Deal Would Form World's Largest Oil Company
Kaplan, Peter, The Washington Times (Washington, DC)
The boards of Exxon Corp. and Mobil Corp. formally approved a $82.8 billion union yesterday that would create the world's largest oil company and radically alter the landscape of the industry.
Under the agreement, Exxon will acquire Fairfax-based Mobil and own 70 percent of a newly created company called Exxon Mobil Corp. with annual sales of $203 billion.
If antitrust regulators approve the deal, the Exxon-Mobil combination would be the second big oil merger this year, and the largest in a series of billion-dollar mergers among industries ranging from banks and drugstore chains to telecommunications companies and automakers.
"If someone had told me three or four years ago this would happen, I would have said, `No, I don't think so,' " said Peter Horrigan, president of the Mid-Atlantic Petroleum Distributors Association, which represents 250 distributors and gasoline-station owners in the region. "Do you know how to spell wow?"
Exxon Chairman Lee Raymond said at an afternoon press conference that the companies expect to lay off about 9,000 people around the world - slightly more than 7 percent of their combined work force - as part of a plan to shave $2.8 billion in operating costs from the new company.
"This merger will enhance our ability to be an effective global competitor in a volatile world economy, and in an industry that is more and more competitive," Mr. Raymond said.
The headquarters of Exxon Mobil will be located in Exxon's home base of Irving, Texas. However, the new company said it will manage its refining and sales operation from Fairfax.
Mobil spokesman Don Turk said it's not clear exactly how many employees would end up in Fairfax after the merger or whether they would remain at the Gallows Road campus.
"Those decisions will not be made until the merger is completed and blessed by the regulators," he said. "Anything prior to that is just pure speculation."
Oil-industry analysts applauded the deal because it will help the companies compete in an era of depressed oil prices. Crude prices have slumped by more than a third during the last year, cutting deeply into the profits of all the major oil companies.
"Competition in the industry is really intense," said James Placke, a director at Cambridge Energy Research Associates, an oil-industry consulting firm. "Very large companies are now combining because of the efficiencies and the greater capital resources that such combinations will permit."
Cutting a deal was particularly important for Mobil, analysts said, because some of the company's biggest oil reserves are expected to start winding down over the next two years.
"It was inevitable that [Mobil] was going to need to do something," said Carolyn Stortstrom, vice president of Sterling Consulting Group, an oil-industry consulting firm in Houston. "I think that they're particularly vulnerable at this point."
With its vast resources, Exxon-Mobil will be able to take on larger, more expensive exploration projects in regions such as Africa and the republics of the former Soviet Union, Mr. Placke said.
"To go after these prospects requires a lot of financial resources," he said. "Combining the resources of these two very large companies gives them enormous clout."
But the merger could be a tough sell with antitrust enforcers at the Federal Trade Commission and attorneys general in several states where the new company would control a large share of the refineries or gasoline stations. …