Mergers and Aquisitions of ExxonMobil Company - Term Paper Example

? Introduction The global corporate world is inun d with myriad challenges to the market players. It appears that strategies must always be put into place in order to address the situation and outdo the competitors. In the increasingly competitive business environment, mergers and acquisitions are some of the best strategies in dealing with the challenges of the market. In the context of mergers and acquisitions as strategies in the competitive market, several issues are relevant. History is awash with several cases where mergers have actually benefited organizations and created conglomerates which have been seen to capture the market. In the same vein, certain mergers have ended up as flops owing to several challenges and miscalculations that were never addressed in advance. Merger of Exxon and Mobil The Exxon-Mobil merger was actually effected in 1998 after the Exxon Corporation had agreed to purchase Mobil for an estimated $75 billion (Waller 2010). The merger between these two oil corporations proved to be one of the largest mergers in history. Through the merger, it was envisioned that operational costs of the corporation would be reduced by over $2.8 billion per year (Hartley 2003). However, the major driving force behind the merger was the need to streamline operations in the oil industry which had been affected by several global events. The series of crises in the Asian countries and the seemingly global decline in the consumption of crude oil had seen the price of the commodity drop to $11 per barrel from an initial figure of $29. At this same time, OPEC was totally unable to control the production of oil by its member countries. As such, several issues, inefficiencies, and challenges were realized in the oil sector across the world. Oil companies were, therefore, experiencing some of their worst moments in operations, and radical measures became imperative. Mergers and acquisitions of oil companies were, therefore, seen as some of the best avenues to create formidable organizations that could effectively sail through the challenges of that time. As a result of the merger in 1999, Exxon Mobil had an estimated $83 billion in stock transaction with projected annual profits of $8.1 billion (GAO 2004). Since then, the corporation has experienced unprecedented growth, and its market share is actually the highest in the oil industry across the world today. The idea of mergers has suddenly taken over the oil industry as it was seen as the only survival strategy against the greatest challenges of the oil sector. In the late 1990s, merger mania was evidenced amongst the major oil companies in the world. As a result of the mergers, the various rankings that hitherto existed in terms of revenues, operations, and profits were radically changed as some of the companies grew in size owing to the joint operations. The whole idea behind mergers and acquisitions in the oil sector was actually a timely affair that helped save many organizations that would otherwise perish due to the challenges in the sector and the inability of the regulatory body to control the operations in the sector. A merger arises when two or more firms choose to merge and conduct their operations as a single entity. In this regard, the shareholders are normally given the chance to acquire shares in the new organization that emerges out of the merger upon the surrender of the old shares. On the other hand, an acquisition occurs when one bigger firm takes over the operations of another firm which is usually smaller. The smaller firm ceases to exist after the acquisition. These two aspects have continued to gain much popularity as can be evidenced from several situations across the world. Exxon Mobil vs. DaimlerChrysler The merger between Exxon and Mobil was one of the most successful mergers in the history. Today, ExxonMobil is certainly one of the largest corporations in the world and one of the most profitable. With annual revenues of over $450 billion, it certainly appears that the decision to merge the two companies was certainly one of the most brilliant ideas in the industry. At the core of the story behind the success of Exxon Mobil, it is realized that several measures have indeed accounted for this monumental growth that has made the organization scale the heights and forge ahead despite the challenges of the present business environment. Successful Branding In the present business order, mergers and acquisitions are common occurrences. However, most of these mergers are never success stories unlike the case of ExxonMobil. In most cases, the major driving force behind mergers is the need for geographical expansion and product and competency diversification. Most businesses are normally very keen in assessing the legal and financial implications of mergers but often fail to consider the critical aspect of brand management in the post-merger days. Brand management transcends conventional marketing and requires a more integrated approach that can help the business sail through. Without a proper brand management strategy in place, mergers and acquisitions are bound to fail. Brand management is very critical in securing the loyalty of the customers and improving the image of the company in the post-merger days. In the result of the failure to address the concept of brand management, employees are certainly bound to leave and the competitors might take advantage of the unfavorable situation. The major accent must be given to the reason why brand management is often disregarded by most policy makers in the process of creating mergers and acquisitions. It is realized that most companies actually lack the experience and are often unwilling to address brand management until it is too late to rectify the situation. In the case of ExxonMobil, one of the major issues that were taken into account in the process of framing the merger process was actually an effective brand management strategy that was to oversee the process of ensuring that the emergent organization is best recognized by the consumers and the competitors alike. In the merger between Chrysler and Benz, it was realized that several aspects were actually disregarded by the policy makers, hence the whole merger actually ended up a flop. Chrysler Corporation was certainly the most profitable automobile manufacturer in the whole world in the most of the 1990s. In 1997, the sales of Chrysler in the auto market accounted for 24% of the whole auto market in the USA. Such a positive growth enabled the company to increase its share in the market and become one of the most notable corporations in the United States. Towards the end of the decade, the product development costs of the corporation was reduced to 2.8% of the total revenues earned compared to 7% and 6% for General Motors and Ford respectively (Hale 2007). On the other hand, Daimler was enjoying the best of times in Europe with its luxury car sales increasing rapidly amid the strengthening economic climate in the world. The challenge eventually emerged after the “merger of equals” between Daimler and Chrysler. The challenge was so intense that the sales of Chrysler have substantially decreased to about 14% in 2001, while the total revenue of the division has shrunk to 28% in the same period. On the contrary, its home competitors like General Motors and Ford were continuing to gain wider market share amid the same challenges. Similarly, Daimler was not in a better position at that time. With production activities mostly involving labor intensive means, the production process could not match up to the highly mechanized and developed manufacturing methods of Japanese auto manufacturers which produced luxury models like Lexus in amazing numbers. Success and Failure: DaimlerChrysler and ExxonMobil The success of the merger between ExxonMobil is normally attributed to several factors which were not realized in the case of DaimlerChrysler. While some of these factors could actually be managed in the case of Daimler, most of them were actually environmental factors which were beyond the control of policy makers at DaimlerChrysler. Cultural Differences The merger between Daimler and Chrysler was an amalgamation of companies that were located in totally different cultural backgrounds. Chrysler operates in the United States, while Daimler had its base in Germany. This presented a situation of quite different cultural backgrounds that were certainly difficult to harmonize. It is known that many differences exist between the styles of management of the Germans and the Americans. Inasmuch as DaimlerChrysler spent so much effort and money in a bid to harmonize and create a sense of cultural unity, most of these attempts did no bear fruits because of the mere fact that changing one’s cultural orientation is normally very difficult. The same issue was further fueled by the fact that the original production focus of the two companies was totally different. Daimler was credited with producing luxury and special brands of cars while Chrysler was known to produce average-cost vehicles intended for blue collar people. In this regard, tensions were actually evidenced between the two companies as the different managements battled over the focus of production. Much of these tensions were further aggravated by the fact that American workers were paid more than their German counterparts given the higher wage rate in America. In the case of ExxonMobil, the story is rather different. Just four years after the amalgamation of the two companies, much success was evidenced. In the years between 2000 and 2004, the joint company had managed to rake in over $76 billion in net profits with a revenue base of $120 billion. As such, the merger between Exxon and Mobil is one of the most successful amalgamations not only in the oil industry, but across the world as well. In the context of cultural backgrounds, the two companies actually hailed from the same environment, and it was, therefore, a positive boost to the organization given that the operating environment did not change with the merger. Implementation During a premerger process, several agreements and guidelines are normally instituted in order to guide the emerging organization after the merger process. However, the main cause for failure or success of these mergers is normally the speed of the implementation of these guidelines. ExxonMobil is a classic example of how a proper implementation can make the organization a market leader. By so uniting the different parts of the organization as it became impossible to distinguish the original borders, the management of ExxonMobil has contributed considerably to the success of the corporation. Moreover, in this regard, it appears that the success of any merger process relies much on the ability of the management of the two factions to unite effectively and bring the emergent organization under common purpose and objectives. DaimlerChrysler was much affected by the fact that the German division of the organization was still under the control of the Germans while the American division was controlled by the Americans several years after merging. It was therefore difficult to deduce the essence of the merger in the first place given the existing circumstances at that time. Mismanagement As a consequence of the tensions that always existed between the German and American executives, relations between the two divisions grew sourer day by day. In the process, the Germans did their own affairs without regard to whatever the Americans did while the Americans also focused on their division and took no interest in the Germans. In the end, it was realized that the corporation could not achieve any goals given that the objectives in place had actually envisioned a united company. Daimler was nevertheless able to thrive in the market as the luxury car market boomed across the world. In the case of Chrysler, sales plummeted to the extent that the German counterparts felt that they were giving too much in the bargain while the American just “lazed around.” In the case of ExxonMobil, the lines of division were totally erased upon the merger of the two oil companies. Workers and Customers The positive trend realized in the operations of ExxonMobil is partly attributed to the manner the corporation treats its employees and customers. Taking account of the fact that employees form the basis of the growth of the organization, ExxonMobil has realized the imperative of this need and has, therefore, invested heavily in the welfare of its employees. The merger created a large corporation with thousands of employees across the world. In the case of DaimlerChrysler, the German workers felt that they received lesser payment compared to the Americans, and this acted as demotivation. Today, ExxonMobil is indeed the largest non-governmental corporation operating in the energy sector and producing slightly over 3% of the total oil in the world and accounts for about 2% of the global energy production. Despite its success, the company has been facing myriad challenges. The oil sector across the world is indeed inundated with uncertainties and other situations that often cause havoc for the market players. Like any other oil company, ExxonMobil is striving to unveil new sources of oil amid the presently diminishing resources. Today, Exxon Mobil replaces only 94 percent of the total oil it drills, while it replaces more than 157% of the total natural gas it pumps. Revenue and Profits As early as 2005, the ExxonMobil has surpassed other corporations in the word as the largest corporation in terms of revenue earned. In 2005, the total revenues for the corporation amounted to $340 billion, which was a 25 % increase from the 2004 figure (Trajanov 2008). In the subsequent years, the company has managed to remain at the top both in terms of profits and market value. In 2007, the corporation recorded a profit of $40.61 billion against revenues worth $404 billion (Trajanov 2008). This increase was mostly due to the increasing oil prices in the world. Financial Data in USD Millions Year-end 2005 2006 2007 2008 2009 2010 Total Revenue 358955 365467 390328 459579 301586 383221 Net Income 36130 39500 40610 45220 19280 20460 Total Assets 208335 219015 242082 228052 233323 Total Debt 7991 8347 9566 9425 9605 Challenges Despite the seemingly successful times, ExxonMobil is facing myriad challenges that arise out of its large scale operation in the controversial oil sector. Indeed, in the increasingly competitive business environment, the image of the organization is a very important aspect that determines the success of the corporation in the market. In the case of Exxon Mobil, the greatest challenge for the management is to convince the outside world that the organization is a committed proponent of environmental conservation and is always on the watch for any disasters. Due to its large scale activities, the organization is normally a subject of many talks regarding its environmental aspects. In most cases, it is argued that Exxon Mobil’s poor image and improper ethical conduct as regards environmental conservation is actually affecting the operations in certain markets. In the same way, the tricky political situation in the Middle East is also affecting the prices of crude oil and, thereby, influencing the operations of the oil companies. Nevertheless, the corporation is always at the forefront in pushing for various measures and programs intended to enhance environmental conservation and improve the environment. Conclusion Mergers and acquisitions are certainly some of the best strategies adopted by most corporations to survive in the competitive market. However, such mergers are no direct avenues for success owing to the large scale operations that follow. They need proper planning in the premerger process and a consideration of all the critical factors that can affect the operations of the company. Through such proper policies, mergers are certainly bound to prosper as can be evidenced from the success of Exxon-Mobil. Similarly, mergers create the opportunity for organizations to benefit from the varieties of talents and ways of operation. References Energy markets: effects of mergers and market concentration in the U.S. petroleum industry: report to the Ranking Minority Member, Permanent Subcommittee on Investigations, Committee on Governmental Affairs, U.S. Senate. (2004). Washington, D.C.: GAO. Hale, W. E. (2007). One hundred twenty-five years of history. Irving, Tex.: Exxon Mobil Corp. Hartley, R. F. (2003). Management mistakes and successes (7th ed.). New York: John Wiley & Sons. Trajanov, R. (2008). The impact of cultural differences on cross-border merger processes: the example of DaimlerChrysler. SaarbruIcken: VDM Verlag Dr. MuIler. Waller, D. (2010). Wheels on fire: the amazing inside story of the DaimlerChrysler merger. London: Hodder & Stoughton. Read More