Evaluating Exxon Mobil for acquisition by Embry Investment Group

Acquisition of Exxon Mobil

Technical report

Acquisition of Exxon Mobil by EIG

Embry Investment Group is an investment company, which deals in investment, primarily through acquisition of other companies. However, before they acquire an organization, they will require evaluating its overall performance to ensure that their investment will attract many investors in the globe. The suggested company to acquire is Exxon Mobil, a renowned public traded organization, which suits the investor's preference. The suggested company conducts its business in over 200 nations in the globe. In addition, Exxon Mobil has upstream activities in numerous countries. Most importantly, Exxon Mobil deals in gas, oil, coal and chemicals, and its portfolio comprises of discovered oil and gas resources equivalent to 70 billion barrels of oil.

Executive Summary

Currently, business in every sector has become competitive, an aspect, which has seen many companies declining without hope of revival. Therefore, many organizations have put in place strategies that will keep them running in the competitive environment, in an attempt to maintain their market value. Additionally, for a company to survive, and prosper in such a competitive environment, it is important for the board of directors, in consultation with their stakeholders to engage in strategic planning or management, which clearly defines its goals and explores both inner and outer situations to develop the most appropriate strategy (Kotler and Zaltman, 1971).

On the other hand, every business has its ultimate objective, which is always to make profits. Some aim to become a global business leader that is why there are investment companies, whose main agenda is merging, or acquiring other companies. Acquisition not only occurs for declining companies, but also for companies doing very well in the market. It is also a strategy, which companies adopt to ensure continuous growth. Exxon Mobil is a company, which is doing very well on the global scale, and owing to its vigorous business activity, which I feel it cannot perform on its own; I recommend it for acquisition by Embry Investment Group.

Notably, there are numerous countries in the globe, which are in the process of developing. In this process, some of them discover valuable minerals such as oil, a mineral in line with Exxon Mobil's products. Although the company has managed to reach a global market, the rate at which minerals are appearing in various state of the globe, makes it impossible for it to uphold or maintain its crucial business activity; meaning it will require some assistance. For this paper, I will evaluate Exxon Mobil Company, to ascertain its performance in the market for recommendation to EMI.

Business operations

The company has the largest proven reserves and largest production in North America. Its primary assets in Europe include extensive interests in the North Sea and in the Asia Pacific, where both are significant contributors to its total production. The company holds upstream interests in Malaysia, Indonesia and Australia. Upstream operations in Africa takes place in Algeria, Angola, Cameroon, Chad, Egypt, Equatorial Guinea, Niger, Nigeria, DRC, and Sao Tome. Some of the primary assets include producing in Nigeria and Equatorial Guinea, whereas there are some underway developments in Angola, Chad and Nigeria. There are other numerous activities, which the company is part of, and this suggests that the company is active in global oil operations (ExxonMobil, 2012).

Evaluation of Product's Future Requirements

Energy is vital to economic growth, it is apparent that in the future; there will be a need to maintain reliable energy sources, which are affordable because people will continue using them. Additionally, to meet the growing demand of these products, there is a need to develop new energy supplies, safely and in environment friendly manners. The oil industry continues to appreciate because of the growing population, which in turn increases the demand for energy. In the future, research suggests that the demand for energy will increase by around 35% as the global population increases to around 9 billion people. This is the case for both developed and developing countries (Skjaerset, 2003).

For the developing countries, the demand for energy will increase to 65% by the year 2040, suggesting expanding economies and prosperity. Meeting the demand for energy with minimal impact is a chief challenge facing ExxonMobil and global societies in the globe. Fortunately, the advancement of technology will play a significant role in ensuring safe development of the once complicated activity of producing energy sources. By the year 2040, the demand for oil and natural gas will meet approximately 60% of the global energy demand, and most of this supply will come from deepwater fields and less conventional sources including tight oil, oil sands and shale gas. Additionally, international trade will play an important role in supplying the energy requirements for the globe, which will further create or open doors for new international partnerships.

Analysis Methodology

The information provided in this paper relies on credible information provided by the company's website. Additionally, the company I recommend provides its annual reports; therefore, made the analysis assignment easy. The evaluations will cover the products, which the company deals in, the financial performance of the company, which will provide a prospect for the future performance, the pricing and distribution strategies and provide a number of risks that the company may face, or has already faced.

Full Product Line

ExxonMobil offers a portion of the most popular lubricants brands in the globe, known for performance and innovation, respected and depended upon by a large number of consumers and businesses. In addition, the company also offers a wide variety of jet oils, hydraulic fluids, and greases (ExxonMobil, n.d). The lubricants include Mobil 1TM, Mobil Delvac 1TM, industrial lubricants, ExxonMobil Marine lubricants, and ExxonMobil Base Stocks and ExxonMobil Aviation lubricants. The jet oils include Mobil Jet Oil TM, Mobil Jet Oil TM 254, and Mobil Turbo 319 A-2. The hydraulic fluids include Hy Jet TM V, Hy Jet TM IV-Aplus, and Mobil Aero TM HF Series. It also produces a wide range of greases, which include Mobigrease TM 33, Mobigrease TM 28 and Mobil Aviation Grease SHC TM 100 (ExxonMobil, n.d.).

Supporting Data: Financial performance of the company

During the fiscal year ended December 2012, the company reported revenues $482,295.00 million, a slight decrease with 0.85% compared to the year before. The profit used for operation by the company was $78,726.00 million during the fiscal year 2012, which is an increase of 7.47% from the year 2011. In addition, the company recorded a net profit, which amounted to $44,880.00 million during the fiscal year 2012, which suggests an increase of 9.30% compared to the previous year (Exxon, 2012). The company represented a strong development owing to its operating performance for the fiscal year ended Dec 2012.

This is because during the time, the company's operating income increased to $78,726 million in the year 2012, which was an increase of 7.47% compared to the previous year. Such growth in the operating income has led to improved total net income of the company. In addition, for the fiscal year ended 2012, the company recorded an increase of the net income to $44,880 million, which suggests an increase of 9.30% compared to the year 2011.

Notably, the company has witnessed a decrease in the operating expenses over the past three years. This is apparent because it was 86.18% in the year 2010, 84.94 in the year 2011 and 83.67% in the year 2012. Additionally, the company has showed an increase in its operating margin (Exxon, 2012), which further suggests that the company's revenue had increased when compared to that of the expenses. Therefore, the company's firm operational performance will increase the investor's confidence and will provide a positive reflection for the future; a primary reason why EIG should consider acquiring the company (ExxonMobil).

Performance chart (Exxon, 2012)

Risk Factors

Although ExxonMobil is a giant company, it does not fall short of risks. However, the primary risk the company faces is the legal proceedings, which involve litigations that further add to expenses. Litigation has the capacity to influence the company's financial status and undermine the company's operations. The company has found itself in numerous lawsuits and legal proceedings of its routine operations. For instance, in the year 2011 there was a case against ExxonMobil concerning an accidental gasoline leak, a case that saw the company pay a fine of $467 million and an additional $1 billion for punitive damages (Economic Times, 2013). In addition, the company may face potential loss owing to weak refining earnings; however, this may not significantly act as a risk factor because the company deals in numerous products. Therefore, if one product fails to realize the expected profit, the other product will stabilize the situation.

Other Risks

Owing to the fact that ExxonMobil deals in petroleum and oil products, the company may face other risks. Government policy is among the potential risks. This is mainly because of the global campaign concerning climate change and global warming; numerous industries are at risk of potential fines or even closure. This is because of the emissions during the processing of their products, some of which generate gases that destroy the ozone layer. In addition, there are various regulations, which the government may impose that such companies may not reach, which will make them potential victims of the fines. Owing to the fact that ExxonMobil may employ waterways in distribution of their oil and petroleum products, a spill in the ocean or leaks, will qualify as endangering species living in the water (Estrada, Tangen and Bergesen, 1997), another potential risk. Some other risks include competition, damages claims by third parties, disruption of the company's operations and inability to protect the company's property.

Supporting Data: ExxonMobil Distribution Strategy

Most of the products from the company reach consumers through the business-to-business approach, and direct contracts with primary consumers are their chief means of conducting their sales. This approach has an advantage towards the company because it leads to steady volumes of sales, whereas the main limitation is that the consumers of the products will have a substantial amount of over the company. The company utilizes numerous channels to distribute the products. The company uses both direct and indirect channels, and the collective length of approaches will vary depending on the number of intermediaries (Kotler and Zaltman, 1971).

The company collaborates with car manufacturers, lubricant distributors, spare part shop operators, service station operators, garage repairers, convenience store operators, fuel wholesalers and franchises to make sure there is continuous distribution of their products. For those who collaborate with ExxonMobil, the company offers them benefits such as high-impact marketing programs, which include both research and promotional chances. The company further offers demographic reports, promotions and some additional product lines. Globally, the company has over 32,000 service stations in various states (ExxonMobil, 2013).

Supporting Data: Pricing Strategy

Notably, the company has a diverse portfolio of businesses, meaning that its pricing strategy for the various products will differ substantially. However, it is essential to recognize that the single most important determinant of the company's pricing strategy is the falling and rising prices of oil in the global market. This is because the fuel prices rely on the alterations in the price of crude oil, supply and demand, fuel particulars, and regulations by the government, taxes and costs incurred during transportation. The actual pricing strategies for products in the company use Economy Pricing this is because the company conducts most of its sales through business-to-business.

Since big organizations are sensitive to fluctuations in the prices of oil, the producers try to keep the prices at a minimum level. However, if the production and advertisements are not in the minimal level, most businesses may opt to opt for the competitors of the company. For the products that reach consumers directly, there is the utilization of a different pricing approach. Since the company enjoys an almost monopolistic standard in the market, it has the capacity to set high prices for the consumers than the businesses. However, the development of price check plays an important role to ensure such companies do not over-price the consumers.

Conclusion

ExxonMobil is a global company that deals in exploration, transportation and subsequent marketing of oil and gas products. The company is global meaning that it has branches all over the world. It takes part in exploration of oil and gas products in any country in the globe, which may require its exploration expertise or partnership. Notably, the company is a portion of the dissolved Standard Oil Corporation, which had gained a monopolistic nature in the U.S. during the year 1911. Most importantly, the company has maintained its superior financial status in the market, whereby the only loss it records is due to litigation, which leads to the imposition of a substantial amount of money. The company has for numerous times ranked the top, hence fits being the richest and strongest company in the globe.

In addition, the company seems t have everything it requires for it to remain dominant in the energy market; brand, modern supply, pricing strategy, distribution strategy, global outlets, and a clear market segmentation (ExxonMobil, 2012; 2013). Owing to all these, it is apparent that the company's business operations and functions are sound, which is clear from the profits that have shown consistency. Therefore, it is a good choice for any investment company, which seeks to acquire ExxonMobil. This further suggests that the company has the potential to grow and maintain its global position, a good choice for investors. In addition, the company has a workforce of over 300,000 people globally meaning that it can work well to reach the company to other heights in the future. Although acquisitions can pose serious challenges, I strongly feel that acquiring ExxonMobil will be the most promising and memorable business venture for Embry Investment Group (EIG).