Exxon and Mobil Merger—The Market Share Conundrum
Following a review of the proposed $81 billion merger in
late 1998, the FTC decided to challenge the Exxon–Mobil transaction on
anticompetitive grounds. Options available to Exxon and Mobil were to challenge
the FTC’s rulings in court, negotiate a settlement, or withdraw the merger
plans. Before the merger, Exxon was the largest oil producer in the United
States, and Mobil was the next largest firm. The combined companies would
create the world’s biggest oil company in terms of revenues. Top executives
from Exxon Corporation and Mobil Corporation argued that they needed to implement
their proposed merger because of the increasingly competitive world oil market.
Falling oil prices during much of the late 1990s put a squeeze on oil industry
profits. Moreover, giant state-owned oil companies are posing a competitive
threat because of their access to huge amounts of capital. To offset these
factors, Exxon and Mobil argued that they had to combine to achieve substantial
cost savings. After a year-long review, antitrust officials at the FTC approved
the Exxon–Mobil merger after the companies agreed to the largest divestiture in
the history of the FTC. The divestiture involved the sale of 15% of their
service station network, amounting to 2,400 stations. This included about 1,220
Mobil stations from Virginia to New Jersey and about 300 in Texas. In addition,
about 520 Exxon stations from New York to Maine and about 360 in California
were divested. Exxon also agreed to the divestiture of an Exxon refinery in
Benecia, California. In entering into the consent decree, the FTC noted that
there is considerably greater competition worldwide. This is particularly true
in the market for exploration of new reserves. The greatest threat to
competition seems to be in the refining and distribution of gasoline.
Case Study Discussion Questions
1. How does the FTC define market share?
2. Why might it be important to distinguish between a global
and a regional oil and gas market?
3. Why are Exxon and Mobil emphasizing efficiencies as a
justification for this merger?
4. Should the size of the combined companies be an
important consideration in the regulators’ analysis of the proposed merger?
Explain your answer.
5. How do the divestitures address perceived anticompetitive