Lee Raymond, CEO of Exxon will continue as the CEO of Exxon Mobil and Lou Noto, CEO ofMobil will be the Vice President of the merged entity
Historical Background Decedents of Standard Oil 1911 – Standard oil dissolved and split into 34 companies Jersey Standard – Exxon Socony – Mobil
Led by Walter C. Teagle Largest oil producer in the world Was marketed with the names Esso, Enco & Humble Changed its name to Exxon in 1972
Led by Henry Clay Folger 1931 – Socony-Vacuum 1933 – Socony Vacuum and Jersey Standard mergedtheir interests in Far Eastinto a 50-50 joint venture 1963 – changed name to ‘Mobil’
Rationale/Synergies A reflection of industry forces Three Categories Near Term Operating Synergies Capital Productivity Improvements Technology Synergies
Near Term OperatingSynergies Per tax benefits of $3.8 billion Operating Synergies: Increase in production Sales and Efficiency Decreases in unit costs Combining complementary operations
Capital ProductivityImprovements Efficiencies of scale Cost savings Sharing of best management practices Business and Assets were highly complementary
Technological Synergies Owned proprietary technologies in the field of: Deep water and arctic operations Heavy oils, gas-to-liquids processing LNG High Strength Steel Refining and Chemical Catalyst
Regulatory Issues 4-0 Vote in favour by Federal Trade Commission Concerns over areas where these firm directly competed Extensive Restructuring: Sell 2431 gas stations primarily in northeastern US, California, Texas Exxon to scrap options to buy Gasoline stations, divest its refinery and its jet turbine oil business and stop selling diesel fuel and gasoline in California under the Exxon name for at least 12 years Mobil to shed its fee and leased service stations from NY to Virginia, divestiture of joint venture with BP Amco
The Merger Pooling of Interest Method Under the merger agreement, an Exxon subsidiary would merge into Mobil so that Mobil becomes a wholly owned subsidiary of Exxon Mobil In the combined entity, Exxon shareholders would hold 70% and Mobil shareholders 30% Holders of Mobil common stock would receive 1.32015 shares of Exxon common stock for each share of Mobil common stock
Since Exxons market capitalization was significantly larger than Mobils, Exxons shareholders would have enjoyed a greater proportion of the value creation if no premium were paid by Exxon in the merger. By offering a premium to Mobils shareholders, this potential value creation was instead shared in approximately equal proportions between the companies shareholders and such sharing was deemed to be a reasonable allocation of value creation. J.P. Morgans analysis showed that for transactions involving smaller companies with a relative market capitalization comparable to that of Mobil pre-announcement, a premium of 15% to 25% matched market precedent. In comparison, BP paid 35% premium for Amoco.
Market Reaction Positively assessed the merger as economically sound and value creating 20 day Cumulative Abnormal Returns – Exxon – 1.07%, Mobil – 14%
Sources of Information http://ec.europa.eu/competition/mergers/cas es/decisions/m1383_en.pdf "Exxon Mobil Joint Proxy statement in S-4 SEC Filing (Apr 5, 1999)“ "FTC File No. 9910077, November 30, 1998“ Crow, P (October 1999). "Exxon-Mobil merger wins approval in EU". Oil & Gas Journal 97 (43): 24.