Mobil Corporation (Mobil) made a tender offer to purchase up to 40 million outstanding common shares of stock in Marathon Oil Company (Marathon) for $ 85 per share in cash. It further stated its intentions to follow the purchase with a merger of the two companies. Mobil was primarily interested in acquiring Marathon’s oil and mineral interests in certain properties, including the Yates Field. Marathon directors immediately held a board meeting and determined to find a white knight. Negotiations developed between Marathon and United States Steel Corporation (U. S. Steel). Two weeks later, Marathon and U. S. Steel entered into an agreement whereby U. S. Steel would make a tender offer for 30 million common shares of Marathon stock at $ 125 per share, to be followed by a merger of the two companies.

The Marathon– U. S. Steel agreement was subject to the following two conditions: (1) U. S. Steel was given an irrevocable option to purchase 10 million authorized but unissued shares of Marathon common stock for $ 90 per share (or 17 percent of Marathon’s outstanding shares), and (2) U. S. Steel was given an option to purchase Marathon’s interest in oil and mineral rights in Yates Field for $ 2.8 billion (Yates Field option). The Yates Field option could be exercised only if U. S. Steel’s offer did not succeed and if a third party gained control of Marathon. Evidence showed that Marathon’s interest in Yates Field was worth up to $ 3.6 billion. Marathon did not give Mobil either of these two options. Mobil sued, alleging that these two options violated Section 14(e) of the Williams Act. Who wins? Mobil Corporation v. Marathon Oil Company, 669 F. 2d 366, 1981 U. S. App. Lexis 14958 (United States Court of Appeals for the Sixth Circuit)