Phillips Tosco Union Creates an Important Lubricant Player

    LITTLE FALLS, N.J., Feb. 6 The $7 billion deal announced
February 4 to create Phillips Tosco will have a significant impact on the U.S.
lubricants business, according to leading business consulting firm Kline &
Company.

    "Everyone must recognize that with Tosco comes the announced acquisition
of Sunoco's branded lubricants business," noted William R. Downey, Jr., vice
president of Kline's Petroleum and Energy Practice.  "With that, three
regional players -- Tosco's 76 Lubricants Company, Phillips, and Sunoco --
will come together to form one national player.  If all of these businesses
come together without spin-offs, this will create the fifth-largest branded
lubricant player in the country."

    Most in the lubricants business acknowledge that this merger was not
driven by lubricants implications or synergies, but to understand its impact
fully, Kline believes that this new company must be examined according to the
product and channel dimensions.  "The new Phillips Tosco will be a strong
player in the commercial automotive and industrial market segments," observed
George Morvey, senior consultant in Kline's Petroleum and Energy Practice.
"However, this new company will not be a leader in the consumer automotive
sector, given the position of such dominant players and brands as Pennzoil,
Quaker State, Havoline, Castrol, and Valvoline."

    The Kline team also notes that as these three businesses get together,
none of them bring any internal basestock refining capacity.  This should not
represent an impediment, however, due to the present overcapacity for
basestocks in North America.

    How this new organization will handle brand manifestation is also yet to
be determined.  "Phillips Tosco joins a growing group of companies:  those
with multiple lubricant brands to manage in the marketplace," says Geeta
Agashe, Kline's newly appointed Director of Petroleum and Energy.  "Like
Equilon, Pennzoil-Quaker State, and ExxonMobil before them, Phillips Tosco
will also have to grapple with some brand management issues."

    According to Agashe, these issues include the following:

    *  How many brands should a company of our size maintain? (What would be
       too much; what would be too little?)

    *  Should technology, application, or target geographic region influence
       our brand?

    *  Who should be responsible for brand management?

    *  How can we fully exploit the brand equity that we possess?

    "And what about such other players as CITGO and Conoco who have so far not
announced any intentions to merge"? According to Agashe, what these mergers do
to them is another interesting angle.