SUNS 4337 Thursday 3 December 1998
FINANCE: EXXON-MOBIL MERGER COULD POISON THE WELL>
Washington, Dec 1 (IPS/Abid Aslam) -- The richest merger in history could erode competition in the oil business and poison the well for workers, the environment, and poor countries, warn critics and
Oil titan Exxon Corp. agreed Tuesday to buy rival Mobil Corp. for $77.2 billion. The result, to be called Exxon Mobil Corp. and boasting $203 billion in combined revenue last year, will surpass Royal Dutch-Shell Group as the world's biggest oil company and replace General Motors as the largest U.S. corporation of any kind.
The firms are banking on reduced costs and increased market share to boost their fortunes. "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," they said in joint statement.
Exxon expects to save $2.8 billion on its operations as a result of the merger. The companies would not say how many jobs they plan to drop but the accepted estimate on Wall Street is that 10,000 people could be axed from a combined global workforce of 120,000.
"If past performance of mergers is any guide, thousands of workers will lose their jobs while executive bonuses and shareholder profits skyrocket," says Daphne Wysham, research fellow at the Institute for Policy Studies here.
The merger in essence would leave three major international players in the private oil industry and give Exxon Mobil command over 20.7 billion barrels of oil and gas reserves, 1.6 million barrels a day in production, and 6.7 million barrels of refining capacity.
The deal reunites two major components of John D. Rockefeller's Standard Oil trust, the oil monopoly dismantled by the U.S. government nearly 90 years ago. Last year, Exxon and Mobil accounted for 20% of all U.S. gasoline sales, according to the trade publication 'National Petroleum News'.
The Federal Trade Commission could insist that the new conglomerate sell off some gas stations and refineries to limit the loss of competition resulting from the merger, but industry and political
analysts expect little effective political resistance.
"Members of the U.S. Congress, eager to please potential campaign financiers, will remain quiet about the dangerous concentration of power created by this merger," Wysham predicts.
"Nobody's saying the deal won't go through," says Robert Stimpson, equity markets analyst at IDEA Inc. in New York.
With global markets unsteady, oil and other commodities depressed and economic prospects uncertain, mergers are a favoured way of "scampering around to maintain profitability," according to Stimpson. "Everybody's teaming up."
Since the 1920s, however, mergers have "tended not to produce quite the results their boosters have claimed they would, especially in mature industries with an over-capacity problem," says Doug Henwood, author of 'Wall Street' and publisher of 'Left Business Observer'. The reasons are many but "even strong firms in a declining industry are still in a declining industry."
Nevertheless, mergers and acquisitions have reached a "breathtaking" scale, Henwood notes. "A small oil-producing country never had great bargaining power to begin with but after this kind of truly gigantic consolidation, they'll have even less."
In some ways, "that might not be such a bad thing," says Simon Billenness, senior analyst at Franklin Research and Development Corp., a Boston-based firm specialising in socially responsible investing.
"If stronger companies strike a hard deal with the military junta in Burma or the Taliban in Afghanistan, it would be good from our point of view because it would deprive repressive regimes of hard currency," Billenness reasons.
The sword could cut the other way, however, with companies "getting tough even with more representative and democratic governments that need the fee and tax revenues," he cautions.
Billenness, a veteran of numerous attempts to pass shareholder resolutions urging companies to improve their environmental and labour performance, is especially concerned that Exxon's "corporate culture" will dominate the new company.
"Exxon has a culture of completely stonewalling concerned shareholders whereas Mobil has at least been willing to sit down and talk," he says. Exxon spokespersons have repeatedly defended their company's track record and have maintained that it is willing to listen to "stakeholders."
Wysham, however, notes that both companies "are among the most prominent members of the anti-environmental Global Climate Coalition." This business bloc opposes international agreements such as the Kyoto Protocol, which mandates reduced emissions of 'greenhouse gases', blamed for global warming.
The coalition has used newspaper and television advertisements to argue that international environmental treaties demand that U.S. consumers make sacrifices while the majority of humanity living in poorer countries is excused.
In so doing, the companies have "whipped up xenophobic sentiment when, in fact, 25% of the greenhouse gases come from the United States," says Fred Krupp, executive director of the Environmental Defence Fund in New York.
The cost of the Exxon-Mobil merger tops the $72.6 billion paid earlier this year by Travelers Group to buy Citicorp and British Petroleum's pending, $53 billion acquisition of U.S.-based Amoco.
Mergers in the oil industry are being driven by weak prices and high operating costs. Oil prices - expected to average $12.37 per barrel this year - are hovering at their lowest levels in 25 years. Hopes of recovery hinge on Asia's embattled economies.