Mobil-Marathon outcome may shape oil industry future
Since Wednesday a week ago, the staff of the Federal Trade Commission has been working around the clock. It has been sorting out 147 cartons of paper work and numbering the 323,400 pages that Mobil Corporation deposited in conjunction with its $6.5 billion bid for Marathon Oil.
What the FTC makes of this mountain of paper work it requested, combined with some key court decisions in the next few weeks, could well determine the future size and shape of the oil industry.
Oil industry analysts and oil company executives agree that if the commission decides it would not be uncompetitive for Mobil, the nation's second-largest oil company, to swallow Marathon, the nation's 17th-largest, based on total assets, and if some key court decisions fall in favor of Mobil, the industry will change. It will become much more concentrated as other large oil companies scoop up smaller ones to maintain their position compared with Mobil.
Wall Street analysts say Cities Service, Pennzoil, and Superior Oil might be among the next round of takeover targets.
''We would have to defend our position (in the market) during a time of concentration,'' says an executive with Gulf Oil who has lined up $5 billion in credit for such a defense.
Should the FTC block the Mobil bid, however, or if US Steel should win Marathon, then oil companies, cash in hand, would back off from the Wall Street merger wars. ''A lot of companies are keeping their powder dry until there is some clarification,'' declares Barry Sahgal, an oil analyst for Bache Halsey Stuart Shields Inc.
''If the FTC gives a negative decision,'' says David Snow, an oil analyst with A. G. Becker Inc., ''it will have wider implications. The FTC may even try to avoid giving a decision, since it may not want to take sides.''
But Mobil is pressing the FTC to decide, since a favorable nod from that commission could help Mobil in its battle with US Steel. A lower-court federal judge, John M. Manos in Cleveland, ruled Nov. 30 that a Mobil-Marathon merger might violate antitrust laws. Mobil is appealing that ruling. Furthermore, Mr. Snow notes that ''the Ohio court ruling does not have wider implications regarding antitrust policy. It may stymie Mobil in its battle with US Steel, but it may not say 'naughty, naughty' for the rest of the industry.''
According to Mobil, the deadline for the FTC to make any comment is next Saturday.
The FTC says Mobil can only go ahead with its offer for Marathon 10 days after it is judged in compliance with the FTC request for information. Thus, if the commission does not ask Mobil for any more information by Saturday, Mobil can assume the FTC will not challenge the acquisition under the Hart-Scott-Rodino Antitrust Improvement Act.
This would probably leave Mobil with some ammunition to fight its antitrust battles in Ohio, says Paul de Pinies, an analyst with Prescott, Ball & Turben Inc., a Cleveland-based brokerage house. ''If the FTC says there is no problem, it makes an appeal that much stronger in Mobil's mind,'' he says.
Another possible route for Mobil through the antitrust maze, Mr. de Pinies says, might be for it to offer to sell some gasoline stations in states where Judge Manos found they would violate antitrust laws because of concentration. ''Mobil is not offering to buy Marathon to acquire gasoline stations,'' the analyst says. ''This is being done to acquire reserves.''
In fact, Mobil's attorneys, in an effort to persuade Judge Manos to reverse his decision, offered Tuesday afternoon to keep the corporation's hands off Marathon's marketing and refining operations until they could devise a plan to spin these operations off. The judge declined to go along with this plan, instead suggesting that Mobil extend its offer until a trial can be heard considering the merits of the antitrust case. Since US Steel had indicated it might succeed in its bid by Dec. 11, this plan is opposed by Mobil, since any trial would take months.
Another factor potential suitors are weighing is whether Marathon was fighting the merger simply because it didn't like Mobil, or because it didn't want to merge with another oil company. An executive with one major oil company says he believes Marathon would not have fought a proposal from Gulf or Texaco. In fact, Texaco says, it was approached by some investment bankers representing large Marathon shareholders about entering the bidding war. If the industry perceives Marathon's reluctance as mainly pointed at Mobil, it might not halt some merger plans that are currently sitting on the shelf.
An executive at one large oil company says his company has evaluated various proposals the investment bankers have placed before it. There is a dispute within the company over whether it is better to buy another oil company and its assets or to drill for new oil.
''A lot of these mergers,'' he explains, ''are based on an assumption that there will be a 7 percent annual escalation in crude oil prices to the year 2010 . Not everyone thinks that is going to happen.'' Furthermore, he points out, the return to the oil company can be higher if it drills for oil for tax reasons. But the cost of new reserves can be cheaper if it buys another oil company.
Top 15 US oil companies, 1980 sales Millions of dollars Exxon 103,143 Mobil 59,510 Texaco 51,196 Standard Oil (Calif.) 40,479 Gulf Oil 26,483 Standard Oil (Ind.) 26,133 Atlantic Richfield 23,744 Shell Oil 19,830 Conoco 18,325 Phillips Petroleum 13,377 Sun Company 12,945 Tenneco 12,226 Standard Oil (Ohio) 11,023 Union Oil of California 9,984 Marathon Oil 8,180 Source: Corporate Productivity Atlas, Delphi Research Center, Lincoln, Mass.