Striking the Richest Deal

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Gulf and Standard Oil of California agree to a monumental merger

For a time last week Pittsburgh looked like the gambling capital of the world. A trio of high rollers, each backed by $6 billion or more, flew into the city. Under the rules of the game they were playing, each had to assemble his best hand by 9 o'clock Monday morning, then make one bet without seeing the chips of the others. The jackpot: Gulf Oil, the fifth-largest U.S. petroleum company and one of the ten biggest corporations. After seven hours the winner was announced: Standard Oil of California, best known for its Chevron gas stations, whose cash bid of $80 a share, or $13.2 billion, became the most ever paid for one American corporation by another. Said Socal Chairman George Keller, 60, after it was over: "It's more than I would have liked to have spent, but I was in a poker game and couldn't see the other players."

In this direct and dramatic way was concluded the biggest corporate takeover in U.S. history. Its elements of cold calculation, high risk and individual daring made the move seem entirely characteristic of the oil industry, which has always rewarded the nervy gambler. Socal now stands to become the third-largest American oil company; its combined revenues of $57.3 billion would place it behind only Exxon (1983 revenues: $94.6 billion) and Mobil (1983 revenues: $58.5 billion), A completed deal would also make Socal the largest U.S. gasoline retailer, with 10.2% of the market and stations in every state but Wisconsin and North Dakota. Most important, Socal will have gained control of Gulfs 1.9 billion bbl. of worldwide proven oil reserves, including a vital 723 million in the U.S.

Not unexpectedly, the proposed joining of the two giants set off a gusher of criticism from consumer groups and politicians. In Congress, critics threatened legislation either to block the deal or at least to prevent any further oil mergers. Thundered Ohio Congressman John Seiberling, a Democrat: "It is time to send a message to the oil industry—unrestrained mergers between huge companies suppress competition, endanger our energy independence and threaten productive drive in this country."

Socal immediately said that it would sell many of Gulfs refineries and service stations after it acquired them to keep antitrust considerations from stopping the merger. Still, nervous investors were worried that the deal might fall apart or be stopped by the Government; Gulf shares dropped instead of rising toward the $80 takeover price. The stock closed the week at $65.13.

The threat of Government antitrust action did end one proposed merger last week. U.S. Steel called off plans to link its steel operations with those of National Steel because of probable opposition from the Justice Department.

If the Gulf-Socal merger goes through, it will be the climax of a run of takeovers that has been reshaping the oil industry. In the past 32 months five large oil firms (Gulf, Getty Oil, Conoco, Marathon Oil and Cities Service) have been swallowed up. Last week's news set off renewed speculation about which energy companies would be acquired next. Among the most frequently mentioned targets: Superior Oil, Kerr-McGee and Amerada Hess.