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Exxon, Mobil Complete Merger After FTC Approval

The completion of the deal puts the proposed acquisition of Arco by BP Amoco under a microscope.
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Updated from 6:31 p.m. EST






completed their $81 billion merger Tuesday after the

Federal Trade Commission

approved the deal, putting back together the two biggest pieces of

John D. Rockefeller's Standard Oil

trust, which was broken up in 1911.

The combined Exxon Mobil, as it is now known, is the world's largest publicly traded oil company. Its stock will start trading Wednesday under the symbol



On their last day of trading separately, Exxon's shares fell 1/16 to close at 79 5/16, while Mobil stock rose 7/8 to close at 104 3/8.

Although the FTC stipulated in its widely expected approval that Exxon Mobil must sell 2,400 gasoline stations of its nearly 16,000 stations within nine months, analysts say the divestitures will give the combined company an estimated $2 billion to $3 billion to spend on oil exploration and production.

Under the FTC's ruling, Exxon Mobil will divest about 1,200 Mobil service stations in the mid-Atlantic states and several hundred Mobil stations in Texas, while the new entity must also sell almost 900 Exxon stations in the Northeast and California.

In addition, to comply with the FTC's ruling, the company will have to sell Exxon's oil refinery in Benecia, Calif., which produces 128,000 barrels of oil a day. Exxon Mobil will also be prohibited from using the Exxon name to sell gasoline or diesel fuel in California for up to 12 years.

Federal and state officials said Tuesday that they were confident that the divestitures would continue to preserve competition in the oil industry, although the deal will make it harder for

BP Amoco



Atlantic Richfield


to get permission to complete their $29 billion proposed merger.

"Every deal has to be examined on its own merits," Robert Pitofsky, the chairman of the FTC, said in an interview with

The New York Times

Tuesday afternoon. "But we are quickly approaching the point where, given the trend toward even greater concentration, we are committed to giving even more scrutiny of the deals that are proposed."

"I don't think that when they started out there was any expectation to give up 2,400 stations," said George Gaspar, an analyst at

Robert W. Baird & Co.

who rates the combined company a market performer.

"It was obvious it would have to come out of their downstream side, which includes refining and marketing," he said. "It's a throwback. But you have to keep your eyes on the big picture which is to combine two major oil companies and create a substantial exploration force." Gaspar's firm has not underwritten any offering for either company.

Fadel Gheit, an analyst for


, noted, "The assets that Exxon and Mobil sell will a have bigger value than most stand-alone companies -- several billion dollars worth."

Exxon's chairman, Lee Raymond, conceded that the divestitures might cause some "uncertainties" to customers and employers.

"We are convinced, however, that the incentives for this merger remain strong,'' he said in a statement.

"The merger will allow Exxon Mobil to compete more effectively with the recently combined multinational companies and the large state-owned oil companies that are rapidly expanding outside their home areas," Raymond said.

Gaspar said the combined Exxon Mobil would be able to increase its total oil production by 500,000 to 1 million barrels a day in five to 10 years. "They have to have a very large exploration kitty," he said. "They have a refining capacity of over 5 million barrels a day. They need another 2.5 million to 3 million barrels to run at maximum capacity."

Exxon Mobil could easily meet that excess capacity through its drilling operations in African waters.

"Their initial objective from a meeting after the merger was announced was to blitz the west coast of Africa," Gaspar said. "Coming together, it's going to make a significant operator in Africa."

Western Africa, he said, has the potential to produce 10 billion barrels of oil for the company, he added.

The deal was announced last December and upstaged the recent $53 billion merger of

British Petroleum




"The merged company expects that the scale of the worldwide near-term cost savings and the long-term strategic benefits will likely exceed those announced last year," Raymond said in a statement.

At the onset of the deal a year ago, the company said it could realize $2.8 billion in savings, but Gheit thinks that estimate is very conservative.

"I used to work for Mobil as a chemical engineer 15 years ago, and I can tell you they are a tenacious company when it came to cost savings," Gheit said. "I think cost savings will exceed $3.5 billion in two years." Gheit rates the stock a buy and has done no underwriting for either company.

Analysts expect that the likely bidders for the domestic assets include

Amerada Hess









Getty Oil




from Canada.

It would make sense for smaller




Ultramar Diamond Shamrock


to buy the California refinery, according to Gheit. "The FTC would not allow the big players in California to get bigger," he said.

"All the buyers of these assets will be the big winners," he added. "It's like a dream world for them."

But the FTC decision could present problems for BP Amoco, as the commission focuses its attention anew on this company. The regulatory agency took just four months to approve the merger of British Petroleum and Amoco last year. But now BP Amoco is trying to acquire Arco, and Gheit said the combined company would control about 90% of the oil coming from Alaska. The FTC must still approve this deal.

"The regulator must have been asleep for this one," Gheit said, referring to the BP-Amoco merger. "They made an example out of Exxon and Mobil. BP Amoco was almost the only game in town. But now it's like when

Patrick Ewing

was coming back: Look out, the captain's back."

Pitofsky declined to discuss the specifics of the BP Amoco-Arco merger, which may soon be challenged by the government unless the companies agree to greater divestitures. But he told the


that the closing of the Exxon acquisition of Mobil is certain to have an impact on any other pending deals.

"Yes, they certainly have an impact and I have to be up front about that," he said. He also said the spate of oil mergers over the last few years had begun to move the industry "from moderate levels of concentration to high levels of concentration," and that "we're beginning to approach the limit."

Gaspar expects the FTC to review the BP Amoco deal with Arco more closely. "It would be hard not to make a move, not to force them to make a downstream divestiture," he said, referring to gas stations and pipeline assets. "I do not believe that the FTC should ever challenge the exploration side because it's getting so expensive that you have to be big to pull it off."