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Has the Justice Department changed its merger guidelines enough so it will turn its back on Gulf Oil Corporation's bid for Cities Service?

This is one of the key questions, securities analysts claim, in looking at Gulf's $5.1 billion bid for Cities. The merger would join Gulf, the nation's sixth-largest oil company, with Cities, the 18th-largest, creating the fifth-largest oil company.

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Noel Casey, an executive vice-president at Wood, Mackenzie & Co., a brokerage house, says it appears Gulf's legal department has decided it can safely make its move, rescuing Cities from an unfriendly offer by Mesa Petroleum. The same day as Gulf's announcement, Mesa said it received 43 percent of Cities stock.

Only four days prior to the merger announcement, the Justice Department, under Attorney General William French Smith, announced new guidelines. These were interpreted to allow slightly more concentrated markets than were allowed in 1968, the last time the department drew up merger guidelines.

Mr. Casey, who formerly worked at the Prudential Insurance Company, which owned 1.6 million shares of Gulf stock, says it appears Gulf's $63 per share offer reflects the Pittsburgh company's belief that Cities Service's earnings are currently severely depressed. Casey is estimating Cities will earn $3 per share this year. Thus Gulf would be paying 21 times Cities Service's 1982 earnings.

According to the latest appraisal by John S. Herold, a Connecticut-based appraisal firm, Cities Service is worth $97 per share. So it appears Gulf may still be buying Cities at a relatively cheap price, unless another bidder steps into the ring.

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