The US Federal Trade Commission has voted 4-0 to allow Exxon Corp. to acquire Mobil Corp. for $81 billion but will require the firms to shed many assets.
Reports also said approval of the Exxon-Mobil combination will make it harder for BP Amoco PLC to acquire ARCO.
Exxon and Mobil had said the merger would allow them to reduce costs and better compete worldwide against government-owned oil companies. The combined firm will have 120,000 employees, $138 billion in assets, and 3.8% of world oil output. Exxon and Mobil accepted FTC's terms and filed papers in New Jersey and Delaware, where they are incorporated, officially creating the new company.
Thirteen state attorneys general approved the settlement. Connecticut did not. Connecticut Atty. Gen. Richard Blumenthal said, "This huge combination may harm consumers, hamstring competition, and threaten dealers." He said the state's opposition was unlikely to block or postpone the combination.
FTC Chairman Robert Pitofsky said, "Because Exxon and Mobil are such large and powerful competitors, and because they now compete in several product and geographic markets in the US, the commission insisted on extensive restructuring before accepting a proposed settlement."
FTC gave Exxon Mobil Corp. 9 months to divest 2,431 US gasoline stations. They must dispose of 1,740 service stations in the Northeast and Mid-Atlantic states. Exxon must divest all of its stations in the six New England states and New York, while Mobil must dispose of stations in New Jersey, Pennsylvania, Delaware, Maryland, Virginia, and Washington, DC.
Exxon must divest all its 360 California stations within 9 months. It has a year to sell its 129,500 b/d Benicia, Calif., refinery but must guarantee to supply the new owner as much as 100,000 b/d of Alaska North Slope crude oil for 10 years.
California Atty. Gen. Bill Lockyer said the state would oppose the sale of the refinery to any of California's other major refiners. He said, "The (FTC) divestment plan begins the process of restoring competition to the California gasoline marketplace."
FTC required Mobil to divest 319 gas stations in Texas and sell terminals in Boston and Washington, DC. Exxon Mobil must also divest 12 gas stations in Guam and ownership of some of its capacity to make paraffinic base oils.
Alaska Atty. Gen. Bruce Botelho said his state will require Exxon Mobil to divest Mobil's 3% share of the Trans-Alaska Pipeline System. Exxon owns 21% of the pipeline. The merged firm must also sell an interest in one of two key US products pipelines: either Exxon's 48.8% stake in the Plantation pipeline or Mobil's 11.49% interest in the Colonial pipeline.
FTC did not require assets to be sold to specific buyers but will require the state gasoline station packages to be sold to single buyers in order to maintain the current level of competition. Also, the new owners of the gasoline stations will be allowed to use the Exxon or Mobil name for up to 10 years, sell Exxon or Mobil motor oil and other branded products, and accept the companies' credit cards.
The buyers would also have the right to expand the Exxon or Mobil network in the states by opening or converting stations bearing the Exxon or Mobil brands.
If Exxon Mobil fails to divest any properties by the FTC deadlines, the agency will name a trustee to divest the unsold assets or other assets.
Meanwhile, the New York Times reported that the FTC staff has concluded that BP Amoco's planned $38 billion acquisition of ARCO may result in higher West Coast gasoline prices if divestitures aren't required there. FTC reportedly is concerned that BP Amoco-ARCO's dominance in Alaskan crude production could enable it to control California gasoline prices.
In negotiations with Alaska, BP Amoco has agreed to sell a number of leases and oil fields that produce 175,000 b/d (OGJ, Nov. 15, 1999, p. 36).
While not specifically commenting on the pending BP Amoco ARCO case, Pitofsky said that, although the oil industry is not very concentrated, FTC is concerned that the level of concentration will increase with each additional merger.
BP Amoco says approval of Exxon Mobil should help its case. A company official said FTC can now focus on its purchase of ARCO, BP-Amoco can complete its purchase of Mobil's assets in their joint refining venture in Europe, and the sale of Exxon's Benicia refinery will lower industry concentration in California and improve chances for its purchase of ARCO.
BP Amoco Chief Executive John Browne said FTC has focused so much on the Exxon-Mobil deal this year that it will be hard for the agency to approve his firm's acquisition of ARCO by the Dec. 31 goal.
Meanwhile, legal reports prepared for the Alaska legislature have criticized the proposed deal Gov. Tony Knowles has struck with BP Amoco-ARCO. The agreement would limit BP Amoco's North Slope ownership to 55%, up from the present 50% but less than the combined 72% that BP Amoco and ARCO now hold.
The legal opinions said that, despite the oil companies' offer to divest some Alaskan assets, the combined firm still would dominate North Slope operations. They noted there is no guarantee that companies buying the assets would be large enough to compete with BP.
The legislature has no power to block the deal but can object to FTC.