Majors' merger rash

David Knott
London
[email protected]

With the merger of British Petroleum Co. plc and Amoco Corp. going according to plan, other majors look set to follow their lead in the race to cut unit costs.

On Nov. 25, BP shareholders voted almost unanimously at a London meeting in favor of the formation of BP Amoco plc. Amoco's shareholders are expected to follow suit in Chicago on Dec. 10.

Tim Whittaker, senior analyst at the London branch of Commerzbank AG, reckons the formation of BP Amoco is virtually certain to be on schedule for the intended shares listing target date of Dec. 21.

Just as BP's shareholders were casting their votes, press reports emerged about negotiations for an even bigger merger, between Exxon Corp. and Mobil Corp. (see related story, p. 37).

John Browne, currently BP chief executive and destined to hold the same role in BP Amoco, recently told reporters a merger of Exxon and Mobil would provide the biggest threat to the new BP Amoco, "because they would be everywhere."

Who's next

Whittaker said, "We are convinced the Exxon-Mobil merger will happen. The agreement of a price should not prove too difficult.

"The biggest issue for Exxon and Mobil merger could be the future role of Lou Noto (Lucio Noto, chairman and CEO of Mobil). He's a big character and might have difficulties fitting in at Exxon."

Combining Exxon and Mobil would create a company with a stock market value of more than $238 billion, dwarfing the new BP Amoco supermajor, valued at $110 billion (OGJ, Aug. 17, 1998, p. 34).

Meanwhile, U.S. and European antitrust authorities are reportedly preparing to begin detailed investigations of the anticipated merger of the two biggest U.S. oil companies.

As the Exxon-Mobil tie-up took shape, Total of France and Belgium's Petrofina SA also announced a plan to merge. The two companies, along with France's Elf Aquitaine, have been featured in many recent merger rumors.

Shell's problem

Whittaker said that the current pressure for U.S. majors to merge could lead to a resurrection of Standard Oil, from which they were formed.

"There is great pressure on Chevron Corp. and the other U.S. majors," said Whittaker. "ARCO, with its assets on the U.S. West Coast and in Alaska, looks to be the next logical target for a takeover by BP Amoco."

The BP Amoco, Exxon-Mobil, and Total-Petrofina merger plans were inspired by this year's worldwide economic downturn. Browne told BP shareholders that economic growth is expected to be lower still in 1999.

"The economy may be in a cyclical downturn now," said Browne, "but we have to be flexible and to create options for the future. The challenge is to position ourselves to be competitive in all circumstances."

Whittaker said that the latest merger rash has made Royal Dutch/Shell looking increasingly isolated, and that the Anglo-Dutch giant is reacting too slowly to events.

"RD/Shell can't act quickly because of the value difference between Royal Dutch and Shell shares," said Whittaker. "The best thing Royal Dutch and Shell can do in the immediate future is merge within themselves, to create one company with one class of shares."