Exxon buys out Mobil for $80 bn in stock

The deal, which comes just days after word first leaked out that the two companies were in talks, calls for Exxon shareholders to own about 70 per cent of the new company, said the source.

It was not immediately clear if the boards of the two companies had voted on the transaction yet but directors of both companies were expected to approve it.

Exxon chairman and chief executive Lee Raymond will retain management control over the merged company, the source said. Mobil chairmanand chief executive Lucio Noto is expected to have a role at the combined company, but his exact title could not immediately be determined.

The deal is expected to be closely scrutinised by US and overseas regulators. Takeover experts have speculated it could take at least nine months to close the transaction.

A merged Exxon-Mobil would have 20.743 billion barrels of oil and gas reserves, 1.631 million barrels per day of oil and gas production and 6.66 million barrels of refining capacity.

The terms represent a significant premium to the current price of Mobil shares, which already have risen sharply in recent days on talk of a deal. Exxon shares closed on Monday at $75.06 each on the New York Stock Exchange.

The deal is the latest combination to hit the oil industry, which has struggled in the face of weak oil prices and high costs, and would in essence leave just three major international players in the industry. Oil prices are now hovering near the lowest levels in 25 years.

Until now, thelargest oil combination had been British Petroleum’s pending $53 billion acquisition of Amoco Corp. The industry also has been rife with smaller acquisitions, joint ventures and alliances.

Wall Street analysts have given mixed reviews to a combined Exxon-Mobil, with some questioning the benefits for Exxon.

Exxon will gain greater access to North Sea oil fields, potential lucrative deals with OPEC kingpin Saudi Arabia, and a stronger presence in the US refining and marketing arena, some analysts have said.

Exxon would also get $3 billion of cost cuts, according to sources familiar with the talks.

But, most industry experts agree that there will be cultural challenges in bringing the two companies together. Exxon is known as an extremely conservative and rigid company, while Mobil has pursued innovative programmes to cut costs and improve productivity.