Economically, the on-again, off-again lovebirds couldn't wait any longer. The two companies already tried to seal this deal more than a year ago, but it fell apart for a variety of reasons — price, succession issues, personality conflicts — that have since been resolved. But new Chevron head David O'Reilly and Texaco chief Peter Bijur apparently got together on the golf course a few months ago and got the ball rolling again. And the rationale for a marriage, the Exxon-Mobil monster's dominance of the U.S. oil business (and huge merger-related cost savings) since their combination two years ago, remains as compelling as ever.
But when Exxon and Mobil showed their deal to regulators, oil was $10 a barrel. Oil companies, starved for profit margins, could make a sympathetic case to trustbusters for allowing them to create an economy of scale. Now a barrel of crude is over $30. The markets are bollixed up, the Middle East is in flames, and the whole thing is taking on a distinctly '70s flavor. And although OPEC is currently committed to easing prices, a close presidential election is being fought — to the largest extent in a long while — over energy policy. Could another U.S. oil behemoth possibly be desirable in these circumstances?
Chevron and Texaco are already making their case: First, that a combination would still be only half as large as international giant BP-Amoco, one of the "super-majors" along with Exxon-Mobil and Royal Dutch/Shell. Second, that they're being patriotic: At a time of increasing foreign dependency on oil, the U.S. should welcome the emergence of a bigger U.S. oil company with increased efficiency for its far-flung drilling interests, from the U.S. to Nigeria to Kazakhstan. Third, that it's only fair: With Exxon-Mobil and the international giants already in the books, Chevron and Texaco deserve their own chance to survive by enlarging.
They're also willing to undergo whatever surgery the FTC demands, including divestitures of Texaco's Equilon Enterprises LLC joint venture with Shell, which would be a dominant interest on the West Coast (where gas prices are particularly high) if it survived the merger. But any politician who's bought into (and/or has been strenuously selling) the Big Oil extortion theory of high oil prices could be loath to let this deal happen on his watch. The stock market voiced some of that uncertainty Monday with its usual merger-skeptic behavior, selling the buyer and buying the seller. (Chevron was down four points in early afternoon, while Texaco — thanks to the 18 percent premium that Chevron's trying to pay for its stock — edged up a buck or two.)
The merger could well go through, once the FTC's certain-to-be-considerable demands have been met, but the word from analysts was that these two couldn't have picked a worse time to put a deal on the government's table. It is, however, safe to assume that in the upper floors of the corporate offices of these two companies, large checks are right now being written to the campaign of George W. Bush.