Outlook: Exxon/Mobil

IT IS THE season of mega-mergers and they do not come much bigger than the mooted $240bn marriage of Exxon and Mobil. This tidal wave of corporate activity is driving stock markets on both sides of the Atlantic back into record territory. That might seem odd when every indicator, at least on this side of the pond, points towards the possibility of recession next year.

The anti-trust authorities must also be looking askance at the sheer volume of bids and deals that are surfacing. As fast as the regulators crack down on cartel activity, big business finds a way to achieve the same end. If you cannot conspire with your competitors to keep prices up, then the next best thing is to take them over.

Fortunately, an Exxon-Mobil merger might have a hard time getting past even the sleepiest anti-trust buster. In order to be made palatable, it would require massive divestments in the US and Europe, where Exxon would be joined at the hip with BP-Amoco by virtue of its partnership with Mobil.

Added to this Exxon-Mobil also offers less scope for cost savings and value enhancements than BP-Amoco and would leave the partners with a massive goodwill write-off. The aim of leaking the talks was probably to make Exxon overpay. But it could just as easily kill the deal, in which case Royal Dutch Shell does not have to press the panic button just yet.