Mobil, Exxon face Y2K conversion together

For now, the two companies will continue their ongoing Year 2000 efforts separately, Don Turk, a Mobil spokesman, said today.

Exxon announced yesterday that it agreed to acquire Mobil for a record $76.2 billion in a stock transaction that will create the world's largest oil company and reshape the industry.

According to both companies' separate Y2K disclosures filed with the Securities and Exchange Commission, when all is said and done the combined costs of their Year 2000 conversion efforts will cost an estimated $450 million to $475 million.

Just a little more than 390 days away, the millennium date change and how computer systems react to the phenomena falls into the merger negotiation mix as companies inevitably discuss how their IT infrastructures will mesh.

"I started hearing about merger and Y2K concerns in the first half of 1998 when a number of institutions in the financial industry were making acquisitions of other companies," said Ann Coffou, an analyst at Giga Information Group. "A lot of companies who are looking to make an acquisition are asking what the status is of the other company's Y2K program. How far along are they?"

Although Turk did not comment on how the Y2K issue fit into merger negotiations between the two corporations, he did detail the company's immediate plans are. "We're going to continue our own efforts. There is nothing we can do until the merger is finalized."

The Y2K bug comes from antiquated hardware and software formats that denote years in two-digit formats, such as "98" for 1998 and "99" for 1999. The glitch will occur in 2000, when computers are either fooled into thinking the year is 1900 or interpret the 2000 as a meaningless "00." The glitch could throw out of whack everything from bank systems to oil manufacturing procedures, observers warn.

Exxon came to the table carrying $250 million, or what it estimates will be its ultimate total cost of achieving Year 2000 compliant systems, primarily over the 1997-1999 time frame. Through September 30, 1998, about $130 million had been spent in the corporations efforts to rid its computer systems of the Year 2000 technology problem.

Mobil reported to the SEC that it estimates the costs to be incurred just to achieve Year 2000 compliance will total roughly $200 million, of which the costs of dealing with IT systems are expected to run about $178 million and the cost of non-IT systems are expected to reach $22 million. The costs for revamping relationships with external agents are expected to be minimal, the company told the SEC.

As of September 30, 1998, Mobil had already spent $89 million of the total costs estimated to be doled out for Y2K.

Mobil believes that worst-case scenarios regarding the Year 2000 technology problem will involve the failure of one or more materially important relationships with external agents, or companies, the company reported to the SEC. It said it is currently developing contingency plans to deal with these issues.

Now that the companies are together, the new organization is still expected to spend $255 million on the Year 2000 technology problem by mid-1999.

The transaction would be the biggest U.S. corporate combination in history, topping the $72.6 billion paid earlier this year by Travelers Group for Citicorp. Mobil and Exxon represent the two biggest parts of the former monopoly Standard Oil, which was broken up in the first decade of this century by federal regulators.

The merged company will be based in Exxon's hometown of Irving, Texas. Worldwide refining and marketing operations are to be located in Fairfax, Virginia, where Mobil is now based.

Reuters contributed to this report.