The Exxon - Mobil Merger Controversy|Business Strategy|Case Study|Case Studies

The Exxon - Mobil Merger Controversy

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Case Details:

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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The Merger

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...

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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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