Misgivings About Big Mergers

A new oil deal causes a stir on Capitol Hill

As antimerger sentiment began bubbling in Congress, the last thing the oil industry wanted was another takeover. But that is exactly what it got last week. Mobil (1983 revenues: $58.5 billion) announced that it would pay $5.7 billion for Superior Oil (revenues: $1.8 billion). It was Big Oil's third megadeal in as many months and came only six days after Standard Oil of California had bid $13.2 billion for Gulf in history's biggest takeover. Sighed Socal Chairman George Keller: "Some people who aren't concerned about two mergers will say that three is too many."

Unlike the public bidding that preceded the Gulf deal, the grab for Superior was made in great secrecy. Using pseudonyms, Mobil President William Tavoulareas traveled to Texas earlier this month to make final arrangements. The merger looks very good for Mobil, which will be paying just under $6 per bbl. for Superior's 1 billion bbl. of oil and liquid natural gas reserves, vs. average exploration costs of $14 per bbl.

Since Superior owns no refineries or gas stations, its takeover by Mobil should not raise serious antitrust issues. But in Congress, questions are being asked about the shrinking number of competitors in the oil industry, as well as the huge sums expended to buy out shareholders.

At least six antimerger bills are being prepared. Congressman Peter Rodino, chairman of the House Judiciary Committee, will hold hearings this week on legislation that would make hostile takeovers more difficult. The proposal would give outside directors on the target company's board power to block offers they consider unacceptable.

The more immediate threat came from an unusual alliance between two Senators who are normally opposed on oil issues. Louisiana's J. Bennett Johnston, who proudly calls himself "a friend of oil," and Ohio's Howard Metzenbaum, a persistent industry critic, united behind a bill to impose a six-month moratorium on acquisitions by the 50 largest oil companies. Because the measure would be retroactive, it could put on hold both the Socal-Gulf and Mobil-Superior deals.

Big Oil launched a counterattack. At a congressional hearing last week, oil company executives denounced the measure. Said Gulf Chairman James E. Lee: "The moratorium would be devastating for Gulf. It would put us in limbo." Added Socal's Keller: "It would be a case of trying to solve a nonproblem with a sledgehammer." Mobil's Tavoulareas sent telegrams to all 535 members of Congress urging that Mobil's purchase of Superior Oil not be stopped.

While Congress was jousting with the oil companies, the Reagan Administration was unusually fractious last week on another corporate coupling. In an article in the New York Times, Commerce Secretary Malcolm Baldrige blasted the Justice Department's decision to block the joining of LTV and Republic Steel because it would reduce competition. Baldrige called the ruling "a world-class mistake" because it hinders the steel industry's efforts to become more competitive with foreign producers. A day later, outgoing Attorney General William French Smith issued a statement defending his department and pointedly remarked that antitrust decisions would be made "without regard to how popular they may be."

In general, the Reagan Administration has been overwhelmingly friendly toward corporate mergers. The betting in Washington was that it would eventually accept the LTV-Republic one as well. After meetings with the Justice Department, executives of the two companies seemed optimistic. By restructuring their agreement, perhaps by eliminating some steelmaking operations, they could meet the Government's merger guidelines.