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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Please note:
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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"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.
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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).
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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. |
The Exxon - Mobil Merger Controversy
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