This paper compares the viability of two major world companies coming together to form an unrivaled business entity with massive influence in the global world. Both companies are the major players in the oil and gas industry. BP plc Corporation was founded in 1889. Its headquarters are based in London. The company provides fuel for transportation, and energy for heat and light, petrochemical products and lubricants to engines (Bamberg, 2000). The company is the largest retailer of gasoline in the USA; it sells its products in 100 countries and is the world’s largest marketer of aviation fuels. The company also engages in alternative energy business as well as offering shipping and treasury services. This assignment will highlight the importance of profitable mergers in a highly competitive business environment and the reasons why many companies seek combination with other successful companies.
The company I would choose for a merger with BP plc is ExxonMobil. Its headquarters are located in Texas, United States. It was founded on 30th of November in 1999 by the merger of Mobil and Exxon. The company is the largest refiner in the world and also in terms of revenue accumulation. Exxon Mobil has an environmental record of drilling increasingly in terrains. The benefits of this merger are that it does not require cash since both companies are well established with successful ventures worldwide.
The shareholders of the combined companies can increase their net worth as a result of the remarkable market performance of the company stock in the exchange market (Hitt, 2001). The company can enjoy the potential of the merged entity in terms of growth and expansion. The companies also do not purchase new assets and engage in leasing thus cutting on the costs of business operations. I would choose Exxon Mobil Company over any other potential companies due to its large capital base, profitability, well major structured base, product range diversification, lower unit costs, large scale production and sales, proprietary technology, cost saving, efficiencies and sharing of the best management practices.
Takeover financing involves the funding for the purpose of obtaining control over a company through the purchase of stock. Financing a takeover for this company would involve borrowing money from a bank or the issue of company bonds. The takeover may also be financed by the issue of loan notes that roll over taxation or an all share deal that render the shareholders of the company being acquired with majority shares and the acquiring company only with managerial rights. The other choices for a merger would be Royal Dutch Petroleum Company and Shell Transport and Trading Company plc. The Royal Dutch Petroleum Company is the second biggest company in the world in terms of revenue after Exxon Mobil.
The company works in the oil and gas industry and is one of the most valued companies. Shell Transport and Trading Company plc is a group of energy and petrochemical companies in over 80 countries. The reason for merging with these companies is that they have a well established structure and hence no costs are incurred to acquire them. The companies have vast operations in many countries with a large number of staff; therefore, no asset purchases or hiring costs are needed. The merger with these companies will help to increase company’s value in the stock market through higher prices of stock. These companies are my 2nd and 3rd choices due to the revenue they generate globally unlike Exxon Mobil and also their growing trend in the world market.
The module 5 SLP has enabled me to learn the importance of companies to engage in mergers so that they can gain from the economies of large scale production and overall increase in revenue and capital base. The learning objective I have mastered in this module is the importance of mergers and acquisitions. The financing options for mergers and acquisitions include borrowing money from the banks as a debt finance to be repaid on loan repayment contractual terms with the bank, the issue of the company bonds to increase the funds required to make an acquisition and the all share deal that allows the shareholders of the target company to own majority shares in the acquiring company and hence own the company (Young, 2003). The success factors in mergers and acquisitions are that they increase the overall net worth of the shareholders, companies enjoy economies of scale due to massive production and also best management practices as a result of the integration of management practices of the combining companies.
The evaluation of the module 5 SLP shows the need for companies to combine together so as to have a competitive edge over the other similar corporations and, therefore, dominate the market over other similar ventures. The companies engaging in mergers and acquisitions should also weigh the gains and the costs of the gains that are associated with this type of business ventures. Therefore, a critical evaluation shows the validity and the viability of companies operating in similar industries to integrate their business ventures together to alter their profitability, sale proceeds, growth and expansion strategies.