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News > Deals
Exxon, Mobil in $80B deal
December 1, 1998: 7:55 p.m. ET

Blockbuster oil merger forms world's third-largest company
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NEW YORK (CNNfn) - Exxon Corp. and Mobil Corp. confirmed their plans to merge Tuesday in a historic $80 billion deal that reunites fragments of the Standard Oil monopoly and creates an entity rivaling some of the richest oil-producing nations of the world.
     Under terms of the deal, the merged company will be called Exxon Mobil Corp., retaining both the Exxon and Mobil brands. The company will be headquartered in Exxon's home city of Irving, Texas.
     At a joint-news conference, Exxon Chairman and Chief Executive Officer Lee Raymond and Mobil Chief Executive Lucio Noto said the deal would allow the companies to compete more effectively in the face of sharply lower oil prices and higher costs for finding new oil reserves.
     "Today's announced combination does not mean that we could not survive on our own," Mobil's Noto said. "This is not a combination based on desperation, it's one based on opportunity. But we need to face some facts. The world has changed. The easy things are behind us. The easy oil, the easy cost savings, they're done. Both our organizations have pursued internal efficiencies to the extent that they could." (187K WAV or 187K AIFF)
     Indeed, over the last few months oil companies have been slashing payrolls and capital spending plans in an effort to offset sharply lower oil prices.
     And, with the prospect of even lower prices ahead, industry experts said it makes sense for Exxon and Mobil to pool their vast resources.
     "Companies are trying to take some action in order to reduce their expenses, so you'll likely see some further mergers and acquisitions," said John Lichtblau, chairman of the Petroleum Industry Research Foundation Inc. in New York.

     Exxon-Mobil like a small oil-rich nation
     To call the combined Exxon-Mobil a giant does not begin to scratch the surface of the pending deal. The two companies will have almost 21 billion barrels of oil and gas reserves on hand, enough to satisfy the world's entire energy needs for more than a year.
     The combination also places Exxon-Mobil behind only Saudi Arabia and Iran in terms of output.
     Already, however, the merger is raising eyebrows.
     Sources from two state attorney generals' offices say at least a dozen states are already in talks to pursue an inquiry into the terms of the deal.
     Exxon's Raymond said he fully expects federal and international regulators to review the merger closely and noted it is likely the companies will be asked to sell some assets.
     "We would be absolutely amazed, although pleasantly surprised, if the Federal Trade Commission said we did not have to rationalize some assets," Raymond said, adding it was premature to comment further.
     One issue sure to grab the spotlight will be the effect of the two companies on gasoline prices, particularly in the Northeast where both Exxon and Mobil have a substantial presence.
     However, experts said it is unlikely motorists will see a sharp jump in pump prices if the deal goes through.
    
The big deal

     Under terms of the agreement, Mobil shareholders will receive 1.32015 shares of Exxon stock (XON) for every Mobil share (MOB) held.
     At Exxon's Monday closing price of $75, the deal values Mobil at $80 billion, or $99.01 per share, a $13.01 premium over Mobil's Monday close of $86 per share.
     However, shareholders were not thrilled by the terms of the deal. Exxon fell 3-3/8 to 71-5/8 in Tuesday trading while Mobil lost 2-1/4 to 83-3/4. The fall in Exxon's share price pushed the value of the deal down to roughly $76 billion.
     The deal is the biggest merger in U.S. history, eclipsing the $72.6 billion union of Travelers Group and Citicorp that created Citigroup (CCI).
     Raymond said the merger talks were not precipitated by the plunging price of crude oil, a global situation that has crippled the industry for much of the year. Had the price of oil still stood at $20 a barrel, he said, the factors driving the merger - cost savings, greater market share, and increased production capabilities - remained the same. (377K WAV or 377 K AIFF).

    
Giants of the oil patch

     Exxon and Mobil are the largest and second-largest U.S. oil producers, respectively, with combined annual revenue of $193.1 billion and production of 2.5 million barrels of oil a day.
     With a combined market capitalization of $237.53 billion, Exxon Mobil will be the third-largest company in the world, behind only General Electric (GE) and Microsoft (MSFT).
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     Source: Exxon
Raymond will serve as chairman, CEO and president of Exxon Mobil while Noto will serve as vice-chairman. Five other Mobil executives will be tapped to join the new board, expanding the total number of directors to 19.
    
A good strategic fit

     Raymond and Noto said that the strengths of Mobil and Exxon were complementary, benefiting not only shareholders and employees but customers.
     "In the exploration and production area, for example, Mobil's and Exxon's respective strengths in West Africa, the Caspian region, Russia, South America and North America line up well, with minimal overlap," Raymond said. "Our respective deepwater assets and deepwater technology also complement each other well."
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     Source: Exxon
The companies expect the merger's economies of scale to cut about $2.8 billion in costs in the near term. The companies also said they plan to cut about 9,000 jobs out of 123,000 worldwide. The deal, which includes $1.5 billion termination fee, is expected to close in the middle of next year.
     Raymond and Noto said the merger would be neutral to earnings in the first year but positive thereafter. Both executives said it would be realistic to assume that capital spending budgets could be trimmed by about 10 percent if the deal goes through as overlapping expenses are removed from the balance sheet.
     The merger of the companies would bring the companies back to their roots when they were part of John Rockefeller's Standard Oil empire. That company was the largest oil firm in the world before it was busted up by the government in 1911.Back to top

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.