Exxon-Mobil: a Study in Cost Cutting

question 51

Essay

Exxon-Mobil: A Study in Cost Cutting

Having obtained access to more detailed information following consummation of the merger, Exxon-Mobil announced dramatic revisions in its estimates of cost savings. The world’s largest publicly owned oil company would cut almost 16,000 jobs by the end of 2002. This was an increase from the 9000 cuts estimated when the merger was first announced in December 1998. Of the total, 6000 would come from early retirement. Estimated annual savings reached $3.8 billion by 2003, up by more than $1 billion from when the merger originally was announced. As time passed, the companies seemed to have become a highly focused, smooth-running machine remarkably efficient at discovering, refining, and marketing oil and gas. An indication of this is the fact that the firm spent less per barrel to find oil and gas in 2003 than at almost any time in history. With revenues of $210 billion, Exxon-Mobil surged to the top of the Fortune 500 in 2004.
-In your judgment, are acquirers more likely to under- or overestimate anticipated cost savings?

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Definitions:

General Journal

A basic accounting record for entering all types of transactions before they are transferred to specific accounts in the general ledger.

Financial Statement

Documents that report on a company's financial performance and health, including the balance sheet, income statement, and cash flow statement.

Normal Balance

is the side of an account on which increases to the account are recorded, typically either a debit for assets and expenses or a credit for liabilities, equity, and revenues.