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M & A :case study

Industry Overview The discovery of Oil is considered to revolutionize the way world has been working. With an inelastic demand of energy, it is no surprise that the market structure of Oil & Gas industry is Oligopolistic. Unlike other industries, the supply of oil & gas depends on a number of factors such as geopolitical tensions, natural calamities, and clamor for energy security by nations, global oil demand and trading speculations. Considering the unusual demand-supply dynamics of this industry, the landscape of M&A activity is driven by the economics of oil, development-driven increase in demand of energy and a race to secure energy stock and reserves for the future. Bloomberg estimates that 27% of the total M&A deals in the year 2011 would be attributed to the energy sector (Bloomberg, 2010). With the advent of financial crisis in 2007-08, the M&A activities in this sector was incentivized in three cases: 1) major oil companies pursuing growth options 2) independents divesting assets in order to focus capital spending on core assets; and 3) companies combining for survival (Booz and Co., 2009). The key trends observed in the M&A transactions across the industry were (i) an increased M&A activity in the oilfield services domain due to necessity of consolidation and need to manage costs (ii) a limited presence of International Oil Companies in upstream M&A activities as they focus on new exploration acreages (iii) New entrants to the hydrocarbon sector (iv) Presence of private equity deals and (v) The emergence of oil sands and coal bed methane as upstream targets. The upswing in the mergers and acquisitions also accompanies certain challenges encountered by the oil and gas sector. These include (i) financial capital (ii) volatile crude prices (iii) rising competition for reserves (iv) political risks and dealing with National Oil Corporations (v) increased drilling and production costs (vi) environmental risks and (vii) enterprise wide risk management. Exxon Mobil & XTO Energy: Company Overview Exxon Mobil: Texas-based Exxon Mobil Corporation is the world largest integrated and not-state owned oil company in the world with a market cap of USD 417.96 Bn. It was formed upon the $76.6Bn merger of Exxon and Mobil on November 30 1999. The main activities of the multi-national Exxon Mobile Group are exploration, production, transportation and sale of crude oil and natural gas as well as manufacture, transportation and sales of petroleum products. Operating in over 100 countries, Exxon Mobil’s strength lies in its functional and geographical diversity. The company derives its revenues from all across the globe – 25% from North America, 23% from Middle East, 19% from Europe, 13% from Africa, 9% from Asia and 11% from the rest of the world (Deutsche Bank, 2010). 72% of Exxon’s value comes from upstream activities, 17% from downstream activities, 9% from Chemicals processing and 2% from others. Major competitors for Exxon Mobil are BP, Royal Dutch Shell and Cheveron. XTO Energy is another Texan based mid-tier oil and natural gas producing company formed in 1985. As of December 31, 2009, it had estimated reserves of 12.50 trillion cubic feet of natural gas, 93 million barrels of natural gas liquids, and ...Show more

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Table of Contents Table of Contents 2 Exxon Mobile’s acquisition XTO Energy 3 Executive Summary 3 Industry Overview 3 Exxon Mobil & XTO Energy: Company Overview 4 Strategy 5 Valuation and Deal Design 8 Financing 9 Regulatory Implications 9 Defence Tactics & Deal Protection Measures 10 Implementation 10 Risks 11 Bibliography 12 Exxon Mobile’s acquisition XTO Energy Executive Summary The up and down swings in the M&A activity in the Oil and gas industry is as volatile as the prices of the commodities…
Author : lynchenrique
M & A :case study essay example
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