Exxon Mobil Merger Case Study

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

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