Private Empire: ExxonMobil and American Power by Steve Coll Page B

Academic studies showed that many corporate leaders had a poor record of buying back shares only when prices were low. “The implied returns . . . from buybacks by big companies would have been laughed out of the boardroom if they had been proposed for investment in bricks and mortar or other more conventional projects,” wrote Richard Lambert, a British critic of the practice. 27 Such programs also raised red flags with some corporate governance specialists because of the manipulations they might mask. Corporate managers might deliberately suppress earnings before a buyback campaign by front-loading expenses to temporarily drive down the price of shares they intended to buy. Repurchases might also smooth out publicly reported earnings per share, to sell Wall Street investors on a story of placid growth when the underlying business was more volatile. In Exxon’s case, all of these concerns hovered, but the buybacks at times also seemed a way to dispose of a problem that other companies could only envy: too much cash.
    The shares Exxon bought back did not simply vanish; they were parked in the form of “treasury shares” belonging to the corporation. Raymond and his management team chose to use the parked shares to purchase Mobil tax free. If Exxon could not discover on its own great gobs of oil, it would buy what it could not find: This was an extraordinary payoff for two decades of cash flow discipline.
    In late November, Raymond flew on an Exxon Gulfstream IV corporate jet to Augusta, Georgia. The corporation maintained a membership at the Augusta National Golf Club, the site of the annual Masters tournament, and the club hosted an annual Thanksgiving party for families. Raymond typically attended and played golf with his three sons, who had grown into better golfers than he was. This time, Raymond ensconced himself in one of the club’s cabins and played as many rounds as possible while reviewing the final deal terms. Late one night a messenger had to find Raymond’s bungalow to hand over documents. 28 Everyone involved in the deal negotiations, including Lou Noto, knew this would not be a merger of equals. There would be a weighted exchange of shares, but as a practical matter Exxon would take over Mobil. Noto volunteered to accept a subordinate position as vice chairman, reporting to Raymond; he would serve in that role for a transition period and then depart, to enjoy his life in New York.
    John Browne later asked Noto if he would have preferred to merge with BP or Exxon. “BP, of course, but I couldn’t make it work,” Noto told him, as Browne recalled it. “When you bought Amoco it was inevitable that Exxon would buy us. It was only a matter of time.” BP had merged its way to a size that Exxon had to match if it wanted to compete, and the acquisition of Mobil was the easiest way for Raymond to get there. 29
    On December 1, 1998, Raymond and Noto stood side by side in a J.P. Morgan conference facility in New York to announce their $81 billion deal. There was no mistaking the new company’s hierarchy: Raymond opened the meeting and spoke for twenty straight minutes. He laid out the merger terms, described the prospective business advantages, and announced future plans in bland press-release prose, displaying all the charm of “the proverbial shoe salesman,” as one newspaper reporter covering the announcement put it.
    When at last his turn at the microphone arrived, Noto hastened to say that his decision to merge with Exxon was “not a combination based on desperation.”

    It was, instead, a requirement of the times. “Competition has changed,” he said. “We’re here because we’re trying to respond to these changes.” 30
    ExxonMobil Corporation—the world’s largest nongovernmental producer of oil and natural gas, and soon to become the largest corporation of any kind headquartered in the United States—formally came into existence on December 1, 1999. During its first year of combined