Tuesday, December 1, 1998 Published at 20:45 GMT
Business: The Company File
Jobs slashed at new oil colossus
Exxon chairman Lee Raymond and Mobil's Lucio Noto
US oil giants Exxon and Mobil have confirmed they will merge in the world's biggest ever corporate marriage.
The deal will create the largest oil company and the third largest company in the world behind GE and Microsoft.
The wedding will lead to 9,000 job losses, or 7% of the group's workforce, around the world.
But Exxon and Mobil have acknowledged that they may have to sell off large parts of the combined business to satisfy competition authorities in the US and Europe.
The merger is the latest deal in a frenetic few weeks for the oil industry as companies seek to come to terms with a slump in the oil price.
However the deal may not be such good news for consumers.
The consolidation of the oil industry will reduce competition in the market and could lead to higher prices at the petrol pump as the new industry Goliath's wield their increased power.
Huge price tag
The new entity, to be called Exxon Mobil, will be 70% owned by Exxon's existing shareholders.
The transaction was initially valued at $80.1bn but has declined to around $77bn on falls in Exxon's share price since the news. Mobil shareholders will be given 1.32 Exxon shares for each Mobil share they hold.
To put in in other words the price tag is on par with the size of entire economy of Malaysia, whose entire output is worth around $78bn.
Exxon chairman and chief executive Lee Raymond will fill the same positions at the new giant. Mobil's Lucio Noto will be vice chairman.
"This merger will enhance our ability to be an effective global competitor in a volatile world economy and in an industry that is more and more competitive," the two executives said in a joint statement.
The combined company will nominally have profits of $1bn a month and 120,000 employees world-wide.
Speaking at a joint news conference, Mr Raymond said the merger will be boost the two company's earnings within two years.
He also said that the merger would cost $2bn to implement but bring huge annual savings.
However the shares of the two companies fell on the US stock market on Tuesday as analysts expressed reservations about the deal and the future of the troubled oil market.
Ironically, the deal reunites the two biggest chunks of the old Standard Oil monopoly of John D. Rockefeller dismantled by the US Government 90 years ago.
Mobil was then Standard Oil of New York, Exxon Standard Oil of New Jersey.
The largest ever business deal before this was the merger-of-equals between Citicorp and Travelers earlier this year to form the $140bn Citigroup.
The Exxon-Mobil deal will be subject to the scrutiny of US and overseas regulators.
Regulators will almost certainly demand the sell-off of several refineries and petrol stations to maintain competition levels in some markets.
Analysts say Mobil will have to sell some of its 6,000 European petrol stations it operates and owns jointly with BP.
Exxon runs 1,874 petrol stations in the UK under the Esso name while BP has 1,831. The addition of Mobil stations could raise the combined Esso-Mobil share of petrol retailing to 25%.
Exxon employs 2,500 staff in the UK at its Esso operations, and 780 staff at Exxon Chemicals, which operates from Fawley and Mossmorran, Fife.
Mobil employs 1,300 at its oil and gas exploration division.
A further 500 staff work for a Mobil joint venture with BP on petrol stations and lubricants.
Falling energy prices are forcing all oil companies in the sector to seek new partners.
The sector has already seen one massive merger this year.
In what was until now the largest industrial acquisition, British Petroleum is buying Amoco for $54bn to create the world's third largest oil and gas company.
The BP-Amoco announcement trumped the recently completed $40.5bn Daimler-Benz acquisition of Chrysler as the largest industrial acquisition.
Royal Dutch Shell and Texaco recently backed away from plans to merge their European refining operations.
If the Mobil-Exxon merger goes through, just three companies - Royal Dutch Shell, BP, and Exxon - will dominate the oil industry.
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