Oct 1, 1999 at 12:00AM
As if that matters. Our goal is to average a return of 15.5% annually over the portfolio's life, so that's the only benchmark we care about. We may come in above that average this year or below that average. We don't know what will happen. Check back on Dec. 31 to find out.
As Jeff and I split a box of Kleenex and looked back at the year thus far through misty eyes, we recalled that the year began with the portfolio in the midst of a whirlwind oil and gas industry study. Sure, we stretched it out over five months, but it was still a whirlwind study based on the sheer amount of things we learned along the way. After all was said and done, the most important thing that we ended up learning was that we needed to learn a whole lot more.
Since the formal study ended, we've kept tabs on the industry and particularly on the company that interested us the most -- Exxon (NYSE: XON), which is soon to officially join hands with Mobil (NYSE: MOB) and become Exxon-Mobil. The two companies took a big step toward ultimately combining their operations earlier this week when the European Commission gave the green light to the proposed merger.
To win over the EC's heart, the companies agreed to shed some of their European assets, most notably Mobil's 30% stake in a fuels joint venture with BP Amoco (NYSE: BPA). Initially, the companies had set today as the target date for garnering the blessing of U.S. antitrust authorities, but that obviously hasn't happened. You know what they say about a road, good intentions, paving stones, and where all of that leads.
Analysts and reporters with nothing better to do are busy placing bets on exactly how long it will take for the Feds to grant their approval. According to Dickie's House of Betting and Fitness Club (www.betandsweat.com), the current odds are 3-1 for one week, 5-2 for two weeks, 8-1 for four weeks, and 20-1 for 50 weeks. Truth be told, we don't really care when the final go-ahead is handed down. However, Jeff was considering the idea of wagering the portfolio's October investment dollars on Slew-Footed Sue to win in the fourth race at Aqueduct today, until I talked him out of it.
We fully expect that the Exxon-Mobil merger will eventually be approved by U.S. trustbusters once the requisite asset divestitures are worked out and put down in writing. Separate betting pools are being set up for the number of gas stations that the two companies will end up shedding in order to secure the Feds' rubber stamp, but we won't bore you with those odds. The market also appears to be fully confident that the Feds will give their nod, as the discount spread between Mobil's share price and Exxon's proposed buyout price has narrowed to less than 1% from 5.5% in May.
However, the ultimate combination of the two companies won't do much to change our investment thesis in the sector. We still don't feel that we know enough about the oil and gas industry to say with any conviction that investing in Exxon-Mobil will return 15.5% annually over the next two decades. Conditions definitely have been improving in the oilpatch lately, as $24-a-barrel crude oil is allowing the major integrated companies to expect rising near-term profits from their most lucrative exploration and production businesses. But that does little to help us determine whether the combined company can clear our annual return high jump bar with ease.
We'll stick with our wait-and-see attitude on Exxon-Mobil, though, and focus on the second part of our food and beverage industry study instead. We haven't missed that much by sitting on the sidelines thus far -- Mobil's stock is up 15.1% since the start of the year while Exxon is up only 4.1%. Drip Port is doing better than one of the companies, while losing to the other. Then again, who's counting when it is only the long-term returns that ultimately matter?
- Oct 1, 1999 at 12:00AM