mergers and acquisitions

Prepared by: Mohil Poojara11020241051

Lee Raymond, CEO of Exxon will continue as the CEO of Exxon Mobil and Lou Noto, CEO of Mobil 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 merged their interests in Far East into 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 Operating Synergies Per tax benefits of $3.8 billion Operating Synergies:

Increase in production Sales and Efficiency Decreases in unit costs Combining complementary operations

Capital Productivity Improvements

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

Valuation

Since Exxon's market capitalization was significantly larger than Mobil's, Exxon's 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 Mobil's 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. Morgan's 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/cases/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.

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