Mobilizing Marcor?

The oil industry might seem to be in little need of diversification, given its dramatic rise in profits. Even so, the international oil companies, facing the certainty of takeovers of their overseas wells by many foreign governments, have been seeking to hedge their bets. Gulf Oil, for example, in the last year has tried unsuccessfully to buy the CNA insurance business and even the Ringling Bros.-Barnum & Bailey circus. Last week Mobil Oil went it one better by announcing plans to make a tender offer for 51% of the stock of Marcor Inc., the parent company of the Montgomery Ward retail chain and Container Corp., a packaging giant.

The combination would be one of the biggest in U.S. business history. At last week's prices, buying the necessary shares would cost Mobil (which already owns 4.5% of Marcor's stock) at least $350 million. Adding Marcor's $4 billion 1973 sales to Mobil's $11 billion would boost Mobil from seventh rank in the FORTUNE 500 list to fourth.

Mobil quickly ran into a barrage of objections. Congressional critics noted that oil companies have said that their high profits (Mobil's rose 48% in 1973, to $849 million) were needed to finance oil exploration, production and refinery building--not diversification. Federal Energy Administrator John C. Sawhill, who has defended oil profits as "necessary" on precisely that ground, complained that Mobil's plan "puts me in a difficult position."

Big Enough. The Department of Justice is expected to look into possible antitrust violations. In 1969 John Mitchell, then Attorney General, announced that the department "may very well oppose any merger among the top 200 manufacturing firms or firms of comparable size in other industries." Since Mobil is the seventh largest industrial firm by sales and Marcor the fourth biggest general retailer by assets, a merger between them would seem to fall squarely within the Mitchell guideline.

Most important, perhaps, Marcor Chairman Leo Schoenhofen reacted coolly. In a terse ten-line statement, he said: "Marcor's management is not in a position to reach any judgment regarding the proposal." Marcor was formed in 1968 largely for the purpose of fending off takeover bids. The managements of Montgomery Ward and Container were both fearful of such attempts, so they agreed to merge into a company big enough to be beyond the reach of most takeover types, while keeping the managements separate. The arrangement has worked well: last year, Marcor's sales rose 21% and its profits 33%, to $96.7 million.

Mobil, of course, could go ahead with a tender offer to Marcor stockholders without the consent of Marcor's managers. A Mobil spokesman noted that the company has "had a policy since 1968 of seeking out diversification opportunities." Having taken six years to select a suitable partner, the odds are that Mobil will not give up easily.

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