MGMT 9170 Merger Analysis PDF

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Paper 3 for MGMT 9170
Company merger analysis...

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Week 6: Company Analysis

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Week 6 Merger Analysis- ExxonMobil Fitchburg State University MGMT - 9170

Company-Histories & Deal (1)

Company Analysis

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Exxon Corporation, a former Standard Oil Corporation, began in 1882 was part of a more considerable trust that was told to divest itself (Exxon Corporation | American Company, n.d.). Then in 1888, it began growing again and acquiring other companies for the next decade (Exxon Corporation | American Company, n.d.). According to Britannica, before the merger, “Exxon had developed businesses in every phase of the petroleum industry” (Exxon Corporation | American Company, n.d.). Exxon and Mobil were both parts of the Standard Oil Company and Trust and branched off in 1911 when the trust was dissolved (Exxon Corporation | American Company, n.d.; Mobil Corporation | American Corporation, n.d.). In 1966, the name “Mobil” was settled on; they began reaching out further than the oil industry in 1974 and back to their primary focus, petroleum, in the mid to late 80s (Mobil Corporation | American Corporation, n.d.). On November 30, 1999, a more than $80 billion agreement was signed by the Exxon Corporation and the Mobil Corporation, making it one of the largest companies in the world, which continued for the next decade (ExxonMobil, n.d., 2014). This horizontal merger incorporated Exxon, Esso, and Mobil, which merged descendants of Rockefeller's Standard Oil Company of 1870 (ExxonMobil, n.d.). Deal-Financials (1-3) As stated by Berk et al., the steps in the "takeover process" is "valuation," how Exxon and Mobil evaluated each other's worth at the time (2020). Then, an offer would be made, and Exxon did so in December 1998 (Berk et al., 2020). (Weston & The Anderson School at UCLA, 2002)

Company Analysis

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This was a stock-for-stock, stock-swap transaction, where Exxon's market value decreased and Mobil's increased (Weston & The Anderson School at UCLA, 2002). The deal's terms (term sheet) can be seen as represented in tables 3 and 4 (below). Additionally, the cumulative return before and during the merger announcement was "14.8% for Mobil (MOB), and -0.5% for Exxon (XON)" and after returns increased to 20.6% and 3.1% respectively; "Exxon had a P/E ratio of about 23.6 versus 17.9 for Mobil". (Weston & The Anderson School at UCLA, 2002). Articles state different perspectives on the "cost" of the merger; the earliest states a $75.3-billion one states $81 billion, another $87 billion (Brooks, 2019; Reuters, 1999; Weston* & The Anderson School at UCLA, 2002). The exact figures can be seen in figure 12 (Weston* & The Anderson School at UCLA, 2002). According to the CEOs of both companies, "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" (ExxonMobil, n.d.). The merging allowed both companies to corner the U.S. oil market and reach new regions worldwide (Weston & The Anderson School at UCLA, 2002). They mention that the goal is based on a competitive market. With the merger, they would be able to invest in riskier ventures and, of course, money, the great motivator (Weston & The Anderson School at UCLA, 2002). These days "the oceans are on fire," and environmental responsibilities are (finally) exponentially being assigned to oil companies. Merging too many companies is generally frowned upon, but they could argue that they will work towards cleaner power (Laughlin, 2021).

Company Analysis

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(Weston & The Anderson School at UCLA, 2002)

(Chevron Corporation (CVX) Stock Price & News, 2021)

Opinions (4&5) Some believe that the everyday person benefitted from fewer options after the merger (Brooks, 2019). However, if the everyday person were not a stockholder, they would not have received the “1.32015 shares of Exxon stock (XON) for every Mobil share (MOB) held” (Kumar, 2018). Shareholders benefitted quite a bit, but Exxon and Mobil benefitted; Mobil benefitted the most *Table 4 & 12* (Weston & The Anderson School at UCLA, 2002). Overall,

Company Analysis

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the net income growth on average from pre to post-merger was “from 12.9% to 19.78%” accordingly (Kumar, 2018). Both companies needed to sell gas stations, which could be great for mom and pop investors, but could have been detrimental to current employees; many employees lost their jobs (Brooks, 2019). However, many small oil retailers lost their customers, and environmentalists were put on high alert (Brooks, 2019). Future (6-8) Absolutely, the deal was successful and is thriving today. Whispers of an ExxonMobil-Chevron merger came to light in 2020. Last year, following the first loss that the company has seen in over a decade (since the merger), news came to light that the companies had been in talks for merging (Post, 2021; Spector, 2021). Their position seems sort of the opposite of what would happen if a company is losing money; they would not be in the position to acquire another company. However, despite recent losses, ExxonMobil can afford the acquisition costs. They are doing precisely what any other successful company would do; they are working on growing. Not only are talks in the works for another merger, but also for developing and investing in more sustainable research and opportunities (Reuters Editorial, 2021; Spector, 2021). As of September 2020, Exxon Mobil Corporation is the sixth-largest oil company globally (Reiff, 2020). According to Reiff, "Exxon Mobil is the second-largest oil company in the world by market value," despite its physical size (Reiff, 2020). It is sold on the American stock exchange, smaller than Saudi Aramco, and has a higher market value; therefore, Saudi

Company Analysis

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Aramco could not acquire ExxonMobil and vice versa (Reiff, 2020). I believe the most prominent company, China Petroleum & Chemical, could merge or, more likely, acquire ExxonMobil if they so wanted (Reiff, 2020). However, the only merger I see in the future is the one that is already proposed between ExxonMobil and Chevron. Conclusions (9) I would advise Exxon and Mobil to merge again; why wouldn’t they? They became one of the largest companies in the entire world at that time, and it was one of the largest mergers of 1999 (Berk et al., 2020). Additionally, I would recommend that they should have merged with Chevron before the pandemic hit, they could not have known, but one of the companies lowest periods in Dec. 2018 would have been the perfect time to acquire Chevron (Chevron Corporation (CVX) Stock Price & News, 2021). Exxon and Mobil could add economic value to Chevron, then and even now, which is, as Berk et al. states, the perfect reason to acquire a company (2020).

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References A. (2014, January 29). Top 10 Best (and Worst) Mergers of All Time. CNBC. https://www.cnbc.com/2009/12/29/Top-10-Best-(and-Worst)-Mergers-of-All-Time.html Berk, J., DeMarzo, P., & Harford, J. (2020). Fundamentals of Corporate Finance (5th ed.). Pearson. Brooks, N. R. (2019, March 3). Exxon and Mobil Agree to Biggest Merger Ever. Los Angeles Times. https://www.latimes.com/archives/la-xpm-1998-dec-02-mn-49856-story.html Chevron Corporation (CVX) Stock Price & News. (2021). Google Finance. https://www.google.com/finance/quote/CVX:NYSE?sa=X&ved=2ahUKEwjUpfeH19X 0AhXzrlYBHTSYCqUQ3ecFegQIDhAc Exxon Corporation | American company. (n.d.). Encyclopedia Britannica. https://www.britannica.com/topic/Exxon-Corporation Exxon Mobil Corporation | American corporation. (n.d.). Encyclopedia Britannica. https://www.britannica.com/topic/Exxon-Mobil-Corporation ExxonMobil. (n.d.). Our history. https://corporate.exxonmobil.com/About-us/Who-we-are/Our-history Kumar, R. B. (2018). Wealth Creation in the World’s Largest Mergers and Acquisitions: Integrated Case Studies (Management for Professionals) (1st ed. 2019 ed.). Springer. Laughlin, L. G. S. C. (2021, March 25). Breakingviews - Exxon-Chevron deal could help kill fossil fuels. Reuters.

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https://www.reuters.com/article/us-exxon-mobil-chevron-breakingviews-idUSKBN2B H309 Mobil Corporation | American corporation. (n.d.). Encyclopedia Britannica. https://www.britannica.com/topic/Mobil-Corporation Post, T. J. (2021, February 4). Exxon Mobil reports huge 2020 loss as changes draw mixed reviews. The Jakarta Post. https://www.thejakartapost.com/news/2021/02/04/exxon-mobil-reports-huge-2020-lossas-changes-draw-mixed-reviews.html Reuters. (1999, May 28). Stockholders Approve Exxon-Mobil Merger. The New York Times. https://www.nytimes.com/1999/05/28/business/stockholders-approve-exxon-mobil-mer ger.html Spector, M. (2021, February 1). Exxon, Chevron CEOs discussed merger in early 2020 - sources. Reuters. https://www.reuters.com/article/uk-chevron-m-a-exxon-mobil-idUSKBN2A00T3 Weston*, J. F. & The Anderson School at UCLA. (2002). The Exxon-Mobil Merger: An Archetype. Forthcoming Journal of Applied Finance, Financial Management Association. Published. http://www.unm.edu/~maj/Security%20Analysis/Exxon-Mobil%20Merger_.pdf...