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Exxon Mobil Merger Case Study

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5.0Is there value creation in this M&A.
ExxonMobil merger has formed a horizontal merger in which the two firms has combined with another in its same line of business (Brigham and Ehrhardt, 2005). It has created a value of economic scope, increased market share, and reduction in average cost.
A merged Exxon and Mobil would eliminate duplicate facilities in their worldwide empires and undoubtedly let go sizable numbers of their combined 123,000-person work force. A combination of these giants would encourage exploration or investment in promising technologies to convert heavy tar sands in Venezuela, Canada and Australia to usable oil.
Exxon has tremendous reserves of natural gas: 42 trillion cubic feet. A merger with Mobil would add up to an impressive 60 trillion cubic feet in gas reserves. Exxon is also developing economical ways to liquefy natural gas for ease of transportation. Moreover, mergers that reduce competition in the downstream segment of the petroleum industry--such as refining or retail--can reduce competition indirectly in wholesale markets if one of the merging companies is partially or fully vertically integrated. For instance, the Exxon-Mobil merger, which had the potential to reduce …show more content…

By amalgamation, Exxon and Mobil are aiming to cut $2.8 billion annually in costs, primarily by eliminating 9,000 jobs, approximately 7 percent of their combined worldwide workforce. The British Petroleum-Amoco merger earlier this year slashed 6,000 jobs for annual estimated savings of $2 billion. (ExxonMobil, 2000). There are two major components of ExxonMobil 's capital productivity scheme, merger synergies and continuous base efficiencies. ExxonMobil (2000) stated that 'through investment selectivity, aggressive asset management, reduced working capital requirements, and continuous refinement of its efficient capital structure, the company is confident it will deliver the targeted improvements and continue to lead the competition in returns on capital

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The petroleum market rose in 1859 after former rail director Edwin Drake successfully unearthed an oil well with his own oil drill. After this breakthrough, investors realized that oil sites made more financial sense than whaling voyages. Whaling was dangerous, time-consuming, and expensive—while often yielding no profit. But oil drilling was generally risk-free, would not cost anyone’s life, and was more likely to yield something profitable with the reliability of Drake’s oil drill. Consequently, many whaling ports lost their funding to oil sites, and kerosene replaced whale oil as America’s leading natural resource.

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For instance, John D. Rockefeller pursued numerous of strategies, to try to eliminate his competitors. From horizontal integration, in which he tried to buy or force his competitors out, to vertical integration, which Andrew Carnegie also practiced, meaning they eventually owned everything they needed to produce. J. Pierpont Morgan had a different strategy in an attempt to monopolize his company, he would help merge competing corporations by purchasing massive amounts of stocks and selling them at a profit. These strategies helped capitalize the entrepreneurs control in the growing

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Business level strategy Focusing on its core competencies—strong R&D platform, vertical integration, product diversification, economies of scale, disciplined approach to investment and cost management, and operations excellence— Exxon satisfies various consumer needs and maximizes its shareholder value. Business-level strategies enable Exxon to provide value to customers and gain a competitive advantage by exploiting core competencies in all the aspects of Oil & Gas value chain ranging from crude oil and natural gas production to refining the oil and gas, transportation, marketing of petroleum products, and trading of products. Current position as the world’s leading oil & gas company, Exxon is a major player in the conversion of hydrocarbons

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