Du Pont to swallow Conoco in record-breaking merger

By , Business and financial correspondent of The Christian Science Monitor

It will be a merger of industrial giants: Du Pont and Conoco. In one $7.3 billion gulp, E. I. du Pont de Nemours & Co., ranked among the bluest of the blue chips, will swallow Conoco Inc., the nation's ninth largest oil company and second largest coal company.

The combination of the Wilmington, Delaware-based company -- long controlled by the Du Pont family from Delaware's horse country -- with Conoco will be the nation's largest merger, eclipsing an unsuccessful bid Standard Oil of California made for Amax last year for $4 billion.

If the merger is approved by shareholders and federal regulators, Conoco will become a subsidiary of Du Pont. The new company will have revenues of $32 billion, making it the seventh largest industrial corporation in the US. It will control enormous coal reserves in the US, oil fields scattered from the North Sea to the Gulf of Mexico, as well as the nation's largest chemical and fiber operations.

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The merger will cap a climactic three weeks for Conoco, the larger of the two companies. Conoco, a diversified energy company, has been the subject of a $2. 55 billion bid by the Montreal-based Seagram Company. However, Conoco, in an effort to avoid the bid by Seagram, a liquor-based company controlled by Edgar M. Bronfman, had sought another suitor. It had talked to Cities Service, the nation's 44th largest company, but talks had collapsed. Unknown to Seagram and most of the business and financial community, Conoco began talking to Du Pont on June 25, one day before Seagram's formal offer.

Before the merger is actually concluded, it will be reviewed by federal antitrust regulatory officials. One problem, for instance, could be Conoco's major chemical joint venture at Chocolate Bayou, Texas, with Monsanto, a Du Pont competitor.

In Washington, a spokesman for the Justice Department, said that either the Justice Department or the Federal Trade Commission's Bureau of Competition will look at the proposed merger to see if it violates Section 7 of the Clayton Act, which would bar anti-competitive mergers. The Justice Department had no comment on what attitude it would adopt concerning Conoco's joint venture with Monsanto.

Du Pont, in its announcement, said a special meeting of its shareholders would be held in mid-August to vote on the proposal. Conoco's shareholders will vote on the offer after the offer is actually closed (rather than agreed on) and all regulatory approval is granted. In New York, a spokesman for Seagram said the company had no statement to make at this time.

Du Pont's financial terms to Conoco shareholders involves the issuance of 84 million Du Pont shares and the payment of $3 billion in cash. Du Pont is paying the equivalent of $87.50 per share for 40 percent of Conoco's stock compared with a bid of $73 per share made by Seagram. The exchange of stock will be structured to be tax free for Conoco shareholders. Du Pont, in its statement, said it intended to borrow $3 billion from an undisclosed group of banks to finance the cash part of the transaction.

Wall Street analysts were generally impressed with the long-term prospects for the merger. Jack Henry, an analyst with E. F. Hutton noted that the marriage makes Du Pont fully integrated as far as its oil and gas supplies are concerned. Du Pont uses 300,000 barrels of oil per day in its chemical operations. At the same time, notes Mr. Henry, Du Pont's strong research efforts involving secondary and tertiary oil recovery should aid Conoco. Du Pont also should help Conoco develop coal liquefaction and gasification projects.

Over the near term, however, Mr. Henry is less optimistic. "The acquisition, " he comments, "will slow Du Pont's growth since Conoco is not likely to grow as fast in the next year or two. It will probably take something away from Du Pon't stock multiple." With the large supply of oil hanging over the petroleum markets, the large integrated oil companies, such as Conoco, have been reporting lower earnings recently.

Larry Wachtel, an analyst with Bache Halsey Stuart Shields, notes that Du Pont has been searching for an oil company to buy for years. "Most of the other chemical companies have captive oil companies," explains Mr. Wachtel, "and Du Pont has wanted one as well." Other major chemical companies with oil or natural gas companies include Monsanto, Allied, and Dow Chemical. Currently, Du Pont gets one-third of its oil from Shell Oil Company.

Du Pont is one of the nation's oldest companies, founded in 1802, primarily as a manufacturer of gunpowders. It evolved through the years into a giant chemical and textile fiber company. Today, it employees 130,000 people in 29 countries. It had net income in 1980 of $716 million while Conoco earned $1 billion. Du Pont's chairman, Irving S. Shapiro, is one of the first non-Du Pont's to head up the company. However, four members of the Du Pont family sit on the company's board.

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