Exxon-Mobil Merger Highlights Y2K Issues

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(complete article from http://year2000.dci.com/Articles/990203exxon.htm) Exxon-Mobil Merger Highlights Y2K Issues

Companies planning mergers or acquisitions are finding a new fly in the ointment -- Y2K.

The Exxon-Mobil merger illustrates just how daunting the Y2K problem can be when two giants attempt to come together.

In statements filed with the Securities Exchange Commission earlier this year, Exxon reported that it has already spent $130 million on Y2K work, which it plans to complete by year's end. Mobil reported that 68 percent of its Year 2000 work had been completed at a cost of $89 million.

Now that the companies are coming together, the new organization is expected to spend an additional $255 million on the Year 2000 problem by mid-1999.

Due to the cost and logistical effort of killing the bug, the Y2K issue is beginning to impact other mergers and acquisitions too.

Companies that are looking to make an acquisition must conduct a thorough analysis of a potential partner's Y2K efforts, lawyers say. A status report is not enough. Buyers need to review all of the seller's existing contracts to determine whether the seller is Y2K-compliant and to understand how noncompliance in any one area could affect the economic value of the business they want to buy.

Buyers need to make sure that the seller clearly defines what "Y2K-compliant" means, taking care to distinguish between the various types of software involved. For example, there's non-compliant software that is manufactured and sold by third parties, but used in the seller's business -- software that encompasses some of the assets being sold. There's also non-compliant software used by outside parties like vendors.

The distinction is important because outside parties' non-compliant systems could cause problems when interacting with the seller's business. If merger payment includes stock from the acquiring company, the Y2K risks of the buyer become important to the seller.

Mobil, for example, reported to the SEC that it believes that worst-case scenarios regarding the Year 2000 technology problem will "involve the failure of one or more important relationships with external agents or companies." The company is currently developing contingency plans to deal with these issues -- and thus avoid erosion in the value of its stock option.

"Words, from the definition of 'Y2K-compliant' to the small print on the final contract, can tell the story of a successful merger or acquisition," says Susan Berson, counsel in the law firm of Shook Hardy & Bacon. "Or they can form the first chapter in a complicated case that leads to a courtroom."

-- Mr_Kennedy (y2kPCfixes@motivatedseller.com), February 04, 1999


Wouldn't want to be the Y2K manager who sits down with my merger- relateed opposite number to find out that HIS company is date expanding, and I'M windowing, and we're BOTH reporting 85% completion, 50% testing completion, etc.

And HIS company is the surviving company.

Or we're BOTH windowing, with DIFFERENT pivot years, almost all of which have been hard coded because it was easier than some tabling scheme.


-- Chuck, night driver (rienzoo@en.com), February 04, 1999.

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