Fighting Back

Marathon fends off Mobil

When the long-awaited assault came, Marathon Oil was well prepared to man the battlements. Within hours after the Mobil Corp. announced its $5.1 billion bid to buy the 17th largest U.S. petroleum company, members of Marathon's big-time defense team were flying to its small-town headquarters in Findlay, Ohio (pop. 38,000). Marathon was putting into action the now classic defense in a takeover battle.

One of the oil company's first steps was to summon its group of outside advisers. They included: Bruce Wasserstein and Joseph Perella, investment bankers with First Boston Corp., a Wall Street firm; Joseph Flom, a lawyer with the New York firm Skadden, Arps, Slate, Meagher & Flom; and Richard Cheney, a public relations expert with New York's Hill & Knowlton, who directed the media campaign that helped McGraw-Hill block the attempt by American Express to take it over.

At a frenzied series of weekend meetings, these hired guns huddled with Marathon's board of directors. Wasserstein and Perella told them that Mobil's offer of $85 a share was "grossly inadequate." Flom advised the directors that the offer raised serious antitrust questions. As a result, Marathon sued Mobil in Cleveland's federal district court and obtained a temporary restraining order to stall the takeover bid. Cheney and his staff arranged a satellite broadcast to television stations across the U.S. of Marathon's response to the Mobil offer.

In the meantime, Marathon directors quickly began considering their options for the next step. Many companies at this stage start looking for a so-called white knight, a firm willing to offer a higher price or more attractive merger conditions. Marathon's choices for such a savior are limited to a few giant corporations, mostly other oil companies, that have the financial resources to outbid Mobil. So far, however, no public candidates have come forward.

A federal judge ordered both Marathon and Mobil not to discuss their next moves publicly until Tuesday of this week. But documents filed last week with the Securities and Exchange Commission reveal that the Marathon board of directors has already authorized the firm's officers to use an assortment of defensive tactics. In merger circles these have been nicknamed "the grab bag." Marathon's options:

Buy back its own shares. This strategy would be used to keep them out of Mobil's hands. As early as last summer, when Marathon was first touted on Wall Street as a prime takeover candidate, the firm arranged a $5 billion line of bank credit that could be used for this type of protection.

Issue new stock. The buyers would be friendly investors who would be unlikely to sell it to Mobil. Marathon officials have the authority to boost the company's outstanding common stock from 59 million to 150 million shares.

Buy another company. Such a step would make the merger target bigger and thus tougher to take over. Just before the Mobil bid, Marathon announced a tentative deal to purchase the U.S. subsidiary of Husky Oil Ltd., Canada's 14th largest petroleum company.

While considering these moves, Marathon will continue to press its case in the courts and before the Federal Trade Commission. Either of them might thwart the Mobil takeover on antitrust grounds.

Washington legal experts, though, consider that outcome unlikely. They point out that a Mobil-Marathon combination would still control barely 10% of U.S. gasoline sales in a highly competitive market.

But such legal action will give Marathon more time to find a white knight with a superior offer. The goal, after all, is to secure the best deal possible before admitting defeat.

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