ExxonMobil Merger

Abstract

This megamerger of oil industry reunited the major disintegrated divisions of the Standard Oil which had once controlled approximately 90% of oil production in the United States. In 1998, Exxon and Mobil merged in a deal valued at $81 billion. The merged entity became the third largest company in the world at the time of announcement. The merged company was called ExxonMobil Corp. The merger created one of the world’s preeminent oil companies with revenues of $200 billion and worldwide production of 2.5 million barrels of oil a day. The combined ExxonMobil with a market capitalization of $237.53 billion became the third largest company in the world behind General Electric and Microsoft. Under the terms of the agreement, Mobil shareholders received 1.32015 shares of Exxon stock (XON) for every Mobil share (MOB) held. By the merger with Mobil, Exxon focused on expansion of its presence in the regions of high potential for future oil and gas discoveries. The consolidation facilitated the combination of Exxon’s rich experience in deepwater exploration with Mobil’s production and exploration acreage in Nigeria and Equatorial Guinea. The merger was expected to generate savings of $2.8 billion after 2 years of deal. The merger with Mobil was expected to achieve significant R&D synergy for Exxon. In terms of book value for Mobil in 1998, the deal value represented premium of approximately 290%. During the entire 282-day period (−9 to 272 days) surrounding the merger period, the cumulative returns for Exxon were approximately 16%. The average growth rate of net income in the premerger period increased from 12.9% to 19.78% in the post-merger period.