The Exxon - Mobil Merger Controversy
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Case Code : BSTR117
Case Length : 21 Pages
Period : 1998-2003
Organization : ExxonMobil
Pub Date : 2004
Teaching Note :Not Available
Countries : USA
Industry : Oil and Energy
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Under the terms of the merger, approximately 1 bn shares of ExxonMobil
were issued in exchange for all outstanding shares of Mobil, based on a swap
ratio of 1.32015.
After the merger, the shareholders of Exxon owned approximately 70 per cent of
the merged entity, while Mobil shareholders owned the remaining 30 per cent.
Each outstanding share of Mobil's preferred stock was converted into one share of ExxonMobil preferred stock. For the nine month period ending September 30, 1999, the merged entity reported revenues of $130.95 bn and a net income of $5.63 bn (Refer Table I).
ExxonMobil owned 21 bn barrels of proven oil reserves and its equivalent in natural gas, about 1% of the worldwide total. A near term operating synergy of $2.8 bn was expected...
The Merger Rationale
Many reasons lay behind the merger of Exxon and Mobil. Analysts said that improved earnings stability, falling oil prices, long-term capital productivity, and enhanced competitive advantage in technology were the main reasons behind the mega merger.
Improved Earnings Stability
The merged entity's functional and geographic diversity was
expected to improve its combined business and financial performance by
reducing the sensitivity of the company's earnings to volatile market
conditions inherent in the energy business. ExxonMobil's diverse
portfolio of assets - crude oil & natural gas production, petroleum
refining & marketing, and petrochemicals - was expected to generate more
stable operating cash flows and higher long-term returns. From a
geographic point of view, ExxonMobil's competitive position was expected
to be further strengthened in mature markets and the company was
well-positioned to exploit growth opportunities in emerging markets.
Exxon had vast experience in deepwater exploration in West Africa while Mobil had production and exploration interests in Nigeria and Equatorial Guinea...
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