<BREAKFAST WITH THE FOOL>
Friday, November 27, 1998
"The farther one gets away from Wall Street, the more skepticism one will find as to the pretensions of stock market forecasting or timing." -- Benjamin Graham
The Return of Standard Oil?
While millions of Americans were gorging themselves on turkey and stuffing on Thursday, two of the world's top integrated oil and gas companies were busy preparing a Wall Street feast of their own. According to an initial report in Britain's Financial Times yesterday, giants Exxon Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XON)") else Response.Write("(NYSE: XON)") end if %> and Mobil Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOB)") else Response.Write("(NYSE: MOB)") end if %> are discussing a possible merger which, if successful, would create the largest publicly traded company in the U.S., with combined annual revenues of more than $181 billion. An announcement concerning the merger may come as soon as Monday or Tuesday, the paper reported.
If a merger does indeed occur, it would be the biggest indication yet that the major integrated oil firms believe the recent low oil price environment is here to stay. On Wednesday, the price of the January light sweet crude oil futures contract on the New York Mercantile Exchange fell below $12 a barrel, representing a 32% drop for the year. With a meeting of OPEC oil ministers in Vienna ending on Wednesday with no extension of the agreements to cut production that were enacted earlier this year, some analysts are predicting oil prices could possibly fall into the single digits before the current worldwide supply glut is resolved. That forecast has U.S. oil companies of all shapes and sizes concerned and on the lookout for new ways to reduce costs, especially in the "upstream" exploration and production ends of the business.
By acquiring Mobil, Exxon will gain access to the Arlington, Virginia-based company's excellent production operations, which posted a stellar 20% return on capital employed in fiscal 1997. The proposed new entity would also combine Mobil's leading lubricants business, with $285 million in worldwide sales last year, with Exxon's petrochemical unit, which is the world's third-largest with $14 billion in annual sales. Given the two companies' extensive U.S. marketing networks and the fact that both were former Standard Oil units, antitrust issues will be widely publicized and closely examined. However, considering the Feds have turned a blind eye recently to a partially reassembled Ma Bell due to changing winds in the telecommunications market, a small-scale reconstruction of Rockefeller's oil trust may have an equally good chance of getting a thumbs-up in the new low-price, low-cost oil environment of the late 1990's.
News to Go
Less than a week after signing on to a landmark $206 billion tobacco litigation settlement with state health departments, cigarette and food products maker Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> decided to resume last year's previously authorized $8 billion share repurchase plan, which will run until November 2001.
The European Union and the U.S. Federal Trade Commission are reportedly looking into allegations of collusion and price fixing by Boeing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BA)") else Response.Write("(NYSE: BA)") end if %> and top commercial aircraft rival Airbus Industrie after the two companies raised the list prices of some of their jets in tandem this summer.
Two British companies have lost top managers over the past few days, according to reports. Martin Taylor, who has headed British bank and investment house Barclays PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BCS)") else Response.Write("(NYSE: BCS)") end if %> for the past five years, resigned to make way for a new management team that will hopefully improve the company's financial performance. Meanwhile, The Wall Street Journal's European edition reported that Cable & Wireless PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CWP)") else Response.Write("(NYSE: CWP)") end if %> is saying goodbye to Rich Yalen, the CEO of its U.S. unit, due to a personal dispute.
Cancer and infectious disease vaccine researcher Maxim Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: MMP)") else Response.Write("(AMEX: MMP)") end if %> reported a fiscal 1998 loss of $2.37 per share, which was worse than the loss of $2.29 per share expected by analysts surveyed by First Call. The company said the loss was due to higher costs for commercializing its Maxamine drug for malignant melanoma and acute myelogenous leukemia.
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Brian Graney (TMF Panic), Writer </BREAKFAST WITH THE FOOL>
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