Exxon Mobil merger was the largest merger of 1999. It was a horizontal merger and was done primarily to keep posting the similar rate of profits for the companies by achieving economies of scale. The resulting company was one of the largest in the world, and in fact it still remains so. The merger was deemed to be extremely successful. An interesting aspect of the merger is its financial position. Each of the merger partners was aware of the industry, were performing well and understood the important of cost cutting.
A staggering 16,000 jobs were made redundant by the year 2002, which is one of the saddest parts of the entire deal, even though 6,000 did come from what is being termed as an early retirement scheme. The estimated annual savings of the company reached US $ 3. 8 billion by the year 2003, which was US $ 1 billion more than what the merger had originally announced (Gaughan, 2005:60-61). The present company is an extremely focused one that is extremely efficient in discovering, refining and marketing oil and gas.
Exxon was always an extremely profitable company. In the year prior to the merger i. e. 1998, the company was the biggest oil producing company in the world ranking fourth in profits, as per Fortune 500. Two years post the merger, where Exxon purchased Mobil for US $ 77. 2 billion, making it the richest merger till then, the company became the worl’s largest oil company and reached to number 3 on the Fortune 500 list. With its revenues at US $ 210 billion, the company eventually surged to the top of the Fortune 500 list in the year 2004.
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The profits in the year 2005 were equally huge, with the amount reaching US $ 9. 9 billion in the third quarter, meaning US $ 45 million gain per hour, according to business writer Jerry Hirsch. The company’s profits in this year reached record limits at US $ 36. 5 billion, which it subsequently broke in the year 2006 – reporting the highest annual profit in American history of US $ 39. 5 billion translating to an amount close to $ 75,000 per minute that year (DePamphilis, 2007:234-235).
Despite the honky dory scenario, the merger faced certain post merger challenges such as conveying its strength in the marketplace, unifying the two strong brands into a single brand under a single corporate identity and combining the two companies wide ranging business franchises. To sort the issues, the company created a new corporate identity drawing upon the most memorable graphic element unique to each company. Each business and franchise was linked to the complete system with the ExxonMobil name e. g. ExxonMobil Chemicals, ExxonMobil Fuels Marketing, ExxonMobil Exploration etc.
to ensure the all of them came under the same corporate umbrella. Also the complete corporate identity system was implemented from facility to the website for use as a common marketing brand (Lajoux, 2005:214-215). CASE STUDY – II Time Warner and America Online, AOL, 2000 The merger between AOL and Time Warner initially baffled the investors and because of this the share values correspondingly suffered. The AOL’s takeover of Time Warner was valued at %US $ 163 billion and was all-share mode, to create the world’s seventh largest corporation.
The resulting company would combine the then AOL’s 18 million Internet access subscribers with the Time Publishing empire and Warner Brother’s various ventures such as movies, music, Home Box Office pay-TV services and the cable TV giant Time Warner Cable. The combined revenues were US $ 40 billion and were rationalized on the necessity of digitization of all the entertainment media in the near future due to the rapid advancements in Internet and technology. The merger went live in 2001. The financial situation of the merger was worrying.
At the time of the merger Time Warner had $ 15 billion in debt and the company’s finances were extremely complex. The merger, partly because of the future projections in terms of money and technology, and partly in terms of the valuation, was considered to be the deal of the century. However, the merger was not a success (Albarran, Chan-Olmsted and Wirth, 2004:217-218). Prior to the merger, Time Warner, as already mentioned was a floundering while AOL had massively growing revenue and profits. Even though AOL was a much smaller company as compared to Time Warner, its market capitalization was double.
The merger however came head to head with the bursting of the Interne bubble. The Time Warner stock, after an initial jump from US $ 7 billion to US $ 10 billion plummeted to US $ 2 billion, while the Internet bubble burst hit the AOL very badly. This decline resulted in a massive write-down of the AOL Time stock. The situation worsened by a US $ 1. 3 billion buyout of the company’s own stock in 2001 and the debt levels rose to US $ 28 billion, with the company’s stock eventually plummeting down by 85% by the year 2002.
In the year 2003, the company renamed itself as Time Warner dropping AOL from its name, after AOL signed off its rights. Many analysts by this time agreed that the merger was one of the biggest blunders in the history of corporate mergers (Vaughn, 2008:24-25). The company also faced major integration challenges, as the backgrounds of the companies were so different. Being a smaller company, and of the new generation AOL’s decision making process was faster and without too much bureaucracy, which was entirely opposite to the way decisions were taken in Time Warner.
In addition, none of the heads of Time Warner were in favor of the deal and resented their reduced importance, and more than that did not agree with the digitization future of the media. The more the heads worked with those in AOL, the less they were convinced of the ability of the new company in achieving its financial projections and the proposed synergies. This suggests that neither party had spent much time in assessing the combination strategy of the merged companies and the real-time implications of the merger itself (DePamphilis, 2007:36-37).
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