Oily deals worth over billions raising eyebrows
Get ready for the fire sale. Your neighborhood Mobil gas station may not be around much longer. To calm jittery antitrust regulators, who may otherwise try to block its proposed $79.3 billion stock and debt acquisition of Mobil, Exxon may be forced to close or sell off many gas stations.
It is the largest corporate merger ever and will lead to the loss of about 9,000 jobs, the companies said.
The deal values Mobil at $94.56 a share based on Exxon's close of 715/8.
Oil analysts say there's no promise that Exxon will sell the gas stations to competitors. Many Exxon and Mobil gas stations are located on prime real estate - heavily-trafficked intersections - that any retailer may take.
So Exxon may well choose to shutter these stations and sell the underlying property to a noncompeting retailer, rather than hand those sites off to the competition.
Who knows? A drive-through Starbucks may be just around the corner - thanks to Exxon's forced fire sale of property.
Yet even as Exxon and Mobil plan to eke out savings of $1.5 billion - mostly through layoffs and the closing of many retail locations - in just one year after their proposed merger, consumers shouldn't expect the lower costs to be passed on at the pump.
Instead, drivers may find themselves paying even more than ever, because of the loss of competition in those situations where Exxon and Mobil had gas stations on opposite corners and were forced into price wars to attract consumers.
"There are no economics scale coming down to the consumer level," said one oil trader.
Exxon CEO Lee Raymond admitted in yesterday's press conference announcing the $79.3 billion acquisition of Mobil Corp. that he expects antitrust regulators will require that Exxon sell off some of its gas stations.
"If that means an intersection that used to have two gas stations ends up with only one, that could eventually lead to higher prices for consumers, not lower," said the trader, who anticipates significant antitrust scrutiny of this proposed merger.
In fact, the merger may not even go through, if the Justice Department or state regulators, including New York's attorney general, choose to block it.
Mobil shareholders seemed concerned about the success of the proposed merger. Even as Exxon offered to pay $99 per share to take over the smaller oil company, Mobil's stock price moved steadily lower, closing the day at 833/4, down 21/4.
"Shareholders always bid up the price of the company that's being taken over, so it's pretty clear that they have their doubts about this one," said the trader.
Still, oil analysts expect more mergers in the oil field. Smaller companies like Sunoco and Chevron may look for suitors to compete against industry behemoths like Exxon/Mobil and Amoco/British Petroleum.
So for consumers seeking to add a buck to their own wallets, the best bet is not to count on lower prices at the gas pump but to invest in this rapidly-consolidating sector in hopes of merger-boosted returns.
-- Beth Piskora - 12/02/98