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Thesis Statement: In a not so shocking move earlier this month, Exxon Corp. announced that they would merge with Mobil Corp. If completed, this would be the largest merger in financial history.
I. The Merger
B. Recent Oil Mergers
II. Problems for the Oil Industry
A. Corporate Problems
B. International Problems
III. Need for a Merger
A. Rockefeller's Ideals
B. What a Merger Could Do to Help
C. Cost of a Merger
A. New Aspects of the Company
B. New Employees
A. Falling Oil Prices
B. Exxon-Mobil's Responsibility
C. OPEC Problems In a not so surprising move earlier this month, Exxon Corporation announced that it would merge with Mobil Corporation. If allowed, this would become the largest merger in financial history. The merger is being done out of an old style of purchasing, pioneered by John D. Rockefeller. His philosophy was that when prices were falling due to overproduction, one should purchase aggressively. That is exactly what Exxon is doing. The purchase of Mobil by Exxon represents a $72 billion purchase. Combined, the two companies had revenues in excess of $203 billion last year alone.
According to Lee Raymond and L.A. Noto, the chairmen of the two companies, "The merging of these two companies will deliver significant near-term pre-tax synergies of about $2.8 billion…. It allows us to manage our expanded, combined asset base to deliver increasing returns and growth to our shareholders while reducing our operating costs. It allows us to continue delivering quality products to our customers at competitive prices into the future."
At $72 billion, the Exxon-Mobil merger is not only largest, but the most ambitious of all of the recent mergers in financial news. The second largest in history was Bell Atlantic's merger with GTE, at over $70 billion.
The Exxon-Mobil merger is the latest in a string of oil mergers this year, beginning with the merger of Amoco Corp. and British Petroleum, Total SA of France and Petrofina SA of Belgium. Others include deals between Texaco Inc. and Shell Oil, and Ashland Inc. and Marathon Oil Co.
The first question that must be asked is why are these companies merging. Most financial analysts say that falling gas prices have fueled the mergers as of late. Recently, oil prices have hit a 22-year low of $11.25 a barrel. That problem is due to overproduction of oil throughout the world. The major oil companies are finding that they cannot raise prices because of fierce competition by independent discounters who can get all of the oil that they want anywhere in the world. Another thing that hasn't helped the large oil companies is the fact that until now, there has been a very mild winter which makes it difficult to sell any heating oil because no one, at least right now, seems to be needing it.
The recent plans to merge have also come from a need to tighten back financially. Most people see the huge oil companies as large, hulking corporate masses. What they don't realize is that the caricature is essentially true. Many oil companies are top heavy. They have too much corporate overhead and that is costing the floundering oil business money that they don't have.
Another factor in the slump of the oil companies are the problems that the Asian powers have been running into. Recently, the Japanese, and consequentially all the other Asian markets, have been in something of a free-fall. Falling stock prices and corporate layoffs have been causing the Asians to buy less oil than they have in past years which is causing less of a market in a large portion of the world.
One final factor in the decline of the major oil companies is the failure last week of the OPEC nations to agree on production. Last week, before the bombing campaign in Iraq began, the United Nations had agreed to renew the oil-for-food deal that they had worked out with Iraq. That arrangement, if finalized, would allow even more oil to filter into the world markets.
Many people in the oil industry had hoped that the bombing of Iraq by the American and British governments would make a large dent in the shipping of oil. This would in turn decrease the amount of oil on the world market allowing companies to raise prices. But, they have had no such luck,
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Rockefeller family, ExxonMobil, Mobil, Standard Oil, Exxon, BP, Royal Dutch Shell, Lee Raymond, 199099 world oil market chronology, Big Oil
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