This newspaper article was written before the 1999 merger between Exxon and Mobil.

The Exxon-Mobil merger

Forced assets sale likely

By DWIGHT SILVERMAN
Copyright 1998 Houston Chronicle

 International, federal and state regulators will insist that Exxon Corp. and Mobil Corp. sell some operations, including gasoline stations and possibly refineries, before approving the $75.6 billion merger announced Tuesday by the two giant oil companies, analysts say.

 Antitrust regulators will scrutinize all the operations of the new Exxon Mobil Corp. -- from pulling oil out of the ground, to transporting it, refining it and selling it to customers.

But they are expected to be particularly concerned over whether the dominance of the companies' combined retail gasoline operations would result in higher prices at the pump, particularly in the Northeast and in Texas.

 "We would look at it from top to bottom, but certainly the main concern will be what kind of impact this would have on gasoline prices for consumer," said Ward Tisdale, a spokesman for the Texas attorney general's office.

 The company apparently will not make it easy for antitrust officials. Publicly at least, the merger agreement doesn't offer to divest assets.

But Exxon Chairman Lee R. Raymond said Tuesday that "we would be absolutely amazed, although pleasantly surprised, if the (Federal Trade Commission) said we would not have to rationalize some assets."

 Raymond added that Exxon and Mobil officials were visiting with FTC officials in Washington "as we speak."

 A commission spokeswoman declined comment.

Regulators will be paying particular attention to this deal because of its size and history. Mobil and Exxon were born as the result of antitrust action -- a landmark 1911 ruling that dismantled Standard Oil, John D. Rockefeller's petroleum empire. The two companies are the largest of what originally were known as the "Seven Sisters," the companies created by Standard Oil's breakup.

 That's analogous to the seven "Baby Bells" arising from the more recent breakup of AT&T.

Exxon Mobil Corp. would become the largest oil company in the world. The companies are being forced into each other's arms because they need the efficiencies that the merger would bring to compete in a world of weak oil prices.

Analysts say that argument will be the key to regulators ultimately approving the deal. In order to compete with global giants such as the Royal Dutch/Shell Group, American companies must grow, and combining forces is the most effective way.

While the companies would have a global reach, analysts say that federal and state officials are going to be very concerned about the combined companies' regional activities, particularly in two areas -- refining and gasoline sales.

"Obviously, the issues all boil down to one simple question: Will prices go up as a result of this merger?" said Stephen M. Axinn, a New York attorney who advised Texaco in its 1996 acquisition of Getty Oil. "Anyone who tries to confuse the matter by making it sound more complicated than that is buffaloing you."

 Antitrust investigators will seek to determine "whether Mobil and Exxon, taken together, have sufficient power to raise prices without getting their lunch eaten by Phillips, Shell, Texaco and so on," Axinn said.

 Nationally, Mobil was the top gasoline retailer last year, accounting for 10.85 percent of U.S. gasoline sales, according to National Petroleum News. Exxon was a close third at 10.39 percent. Together, they would control about 21 percent of the market.

But both Raymond and Mobil Chairman Lucio A. Noto disputed those numbers Tuesday, saying their combined market share is closer to 13.5 percent.

What matters more to regulators than the aggregate numbers is the companies' dominance in particular markets, said Fadel Gheit, a senior analyst with Fahnestock & Co. in New York. "Combined, they might be the largest refining and marketing operation in the U.S., but are they largest on the West Coast? No, that happens to be Arco." Gheit said.

The two companies are particularly dominant in the Northeast. For example, they would have a combined market share of 40 percent in six Eastern states, according to the Petroleum Finance Corp., a think tank for the industry.

 As a result, Exxon Mobil likely would have to divest some of those assets, selling them off to willing buyers.

 The same would be true for some refining operations. Analysts pointed to the proximity of the Exxon refinery at Baytown and the Mobil refinery in Beaumont as an example, saying one of them likely would have to go.

Proximity is an issue for the two Texas plants because location is important in refining. Producers try to move oil to the nearest refinery to cut costs, so having two major plants so close to each other could give Exxon Mobil an unfair advantage over other, competing operations nearby.

 "That's going to be a legitimate issue for the Federal Trade Commission," said Lawrence Goldstein, president of the Petroleum Industry Research Foundation in New York.

The Exxon-Mobil deal also will be studied against the backdrop of other major oil company consolidations, including the British Petroleum-Amoco deal; the recently consummated joint marketing venture between Texaco and Shell; and the merger announced Tuesday between France's Total and Belgium's Petrofina.

The Federal Trade Commission, as opposed to the U.S. Justice Department, is most apt to conduct the antitrust investigation into the merger, according to William F. Shugart II, a professor of economics at the University of Mississippi who worked at the commission from 1973 to 1983.

 Shugart said that the FTC "has a history with both companies."

Exxon was the target of an FTC investigation into price-fixing in the oil industry in the 1980s. And the commission looked at Mobil during its aborted takeover attempt of Marathon Oil in the early 1980s.

"There are roomfuls of documents on Exxon at the FTC," Shugart said. "Same thing with the Mobil-Marathon merger of about the same time. They are very familiar with how Exxon and Mobil do business."

He said the company's failure to offer to shed assets at the outset is "a bit of hardball" that could backfire as community leaders and politicians become nervous about lost local jobs.

 "House members representing Texas and other constituencies where jobs are scheduled for cutting will put pressure on the FTC to prevent that merger from happening," Shugart said.

Tuesday afternoon, the chairman of the U.S. Senate's antitrust subcommittee expressed concerns that the proposed merger is part of an industry trend that will reduce competition and possibly raise gasoline prices for consumers.

As a result, Sen. Mike DeWine, an Ohio Republican, said Tuesday he will ask the FTC to delay its decision on the proposed merger of British Petroleum and Amoco. BP and Amoco officials said they hope to finalize the merger by Dec. 31.

 Meanwhile, Connecticut Attorney General Richard Blumenthal said he would investigate and help lead a multistate inquiry into the proposed merger in order to protect consumers.

Blumenthal, who is chairman of the Anti-Trust Committee of the National Association of Attorneys General, said he wanted to ensure that the merger would not stifle competition and lead to gasoline price increases.