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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"This merger will enhance our ability to be an effective global competitor in a volatile world economy, and in an industry that is more and more competitive." 1

- Joint Statement by Lee Raymond and Lou Noto, Chairmen & CEOs of Exxon and Mobil.

"We're talking about putting back together Standard Oil, which was broken up 90 years ago. Consumers are eventually going to pay the price for this since it induces non-competitive behavior. It's bad public policy. The lax treatment of mergers, with the government just winking at this, empowers such corporate consolidation." 2

- Wenona Hauter, Director, Public Citizen's Critical Mass Energy Project.

Introduction

The two biggest oil companies in the US - the Exxon Corporation (Exxon) and Mobil Corporation (Mobil) announced their merger on December 1, 1998. Exxon announced its decision to acquire Mobil for approximately $76.2 billion (bn) in stock, in the biggest ever deal in the history of the oil industry.

The merged entity, Exxon Mobil Corporation (Exxon Mobil), would emerge as the largest oil company in the world surpassing industry leader, Royal Dutch/Shell.3 The announcement of the merger was received well by the US stock markets. Exxon's shares, which were being traded at $71.63 on the New York Stock Exchange (NYSE) rose to $74 within 15 days of the merger announcement, recording a gain of 3.3%. Mobil's shares, which were being traded at $83.75 rose to $88.44 during the same period, witnessing an increase of 5.6% (Refer Exhibit I). Analysts felt that this proposed merger was yet another example of the consolidation efforts going on in the global energy industry. Earlier, in August 1998, British Petroleum (BP)4 had announced its $49 bn takeover of the US oil giant Amoco, creating UK's largest company, BP Amoco.

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As the merger involved the top two companies in the US, it was closely examined by the Federal Trade Commission (FTC)5 to check whether it breached American anti-trust laws on monopolies. After a thorough and exhaustive review, the FTC approved the merger after the duo agreed to comply with the terms and conditions specified by the FTC (Refer Exhibit II).

Although the FTC approved the merger, media reports commented that the biggest challenge for Exxon and Mobil would be to demonstrate how the consumer would benefit from the merger. Certain industry analysts also opposed the merger. Dan Gilligan (Gilligan), the president of Petroleum Marketers Association of America (PMAA)6 said, "I think the FTC wants to assist American companies to be competitive in the global marketplace, but it also has to be sensitive to how the mergers are perceived by the public in general. If the US government went to great lengths to break up Standard Oil, with these mergers it's starting to look like Standard Oil is coming back. They don't want to have it perceived as that."7 Despite opposition, the merger was formally completed by November 1999.

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1] 'Oil merger faces monopoly probe,' BBC Online Network, December 02, 1998.

2] 'Critics denounce Exxon-Mobil merger,' www.accuracy.org, December 01, 1998.

3] Headquartered in Hague, Netherlands, Royal Dutch/Shell is one of the largest oil and gas companies in the world. It's businesses include oil products, chemicals, transporting of natural gas, trading of gas and electricity and development of renewable energy sources. The company operates in 145 countries and recorded revenues of $179 bn for the year 2002.

4] Headquartered in London, BP is one of the world's largest oil and petrochemicals groups. BP's businesses include exploration and production activities, refining and marketing, gas and power, and petrochemicals.

5] FTC works to ensure that the US markets are efficient and free of restrictions that harm consumers. To ensure the smooth operation of the free market system, the FTC enforces federal consumer protection laws that prevent fraud, deception, and unfair business practices. The commission also enforces federal anti-trust laws that prohibit anti-competitive mergers and other business practices that restrict competition and harm consumers.

6] The Petroleum Marketers Association of America (PMAA) is a federation of 44 state and regional trade associations representing approximately 8,000 independent petroleum marketers across the U.S. Its primary mission is to unify petroleum marketers to effectively further the common business interests of the petroleum marketing industry.

7] Kelly, Beckie, 'Marketers Seek Protection from Mergers,' National Petroleum News, July 1999.

 

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