Professor Elam

Weekend Oct 3 2020

Positive mood generates feelings of inclusion.This is when treaties between countries are signed and merger and acquisition activity  rises.

Negative mood generates exclusive feeling. Wars begin between countries begin. Hitler rose to power at the very bottom of the world wide depression in 1932. He then began a series of wars that would not end until  1945.

In the chart above MRO shares top at 37.50 while  the price of oil in the lower panel tops at 107.  Oil prices collapse to  25 taking MRO with it to 7.50. Now someone looking at the chart might think this would cause MRO to become cautious. But it did not. Oil prices recovered  to 75 and MRO to  22, about two thirds of its prior high.  And then MRO spent  $23 billion in April 2018 to acquire Andeavor. Ironically Andeavor had  spent who knows how much changing its name from Tesoro just a year earlier. All that money was down the drain. 

Here is an excerpt from the news release on the acquisition, notice the positive mood literally leaps off the page.

FINDLAY, Ohio — Marathon Petroleum Corp. (MPC) has closed on the acquisition of all of the outstanding shares of Andeavor. The two refiners and marketers entered into a $23.3 billion merger agreement in April.

The deal geographically diversifies their combined refining portfolio. San Antonio-based Andeavor's refineries in California, the midcontinent and the Pacific Northwest complement Findlay, Ohio-based MPC's existing Gulf Coast and Midwest refining footprint. The combined company will be the No. 1 U.S. refiner by capacity and a top-five refiner globally, with a throughput capacity of more than 3 million barrels per day across 16 refineries.

The transaction creates a nationwide marketing portfolio, combining MPC's strength east of the Mississippi with Andeavor’s strong presence in the western United States. The nationwide retail and marketing business includes approximately 3,900 company-owned and -operated stores and 7,800 Marathon-branded locations. Enon, Ohio-based Speedway LLC, an MPC subsidiary, owns and operates approximately 4,000 c-stores across the United States.

MRO is headquartered in Findlay, Ohiio. Andeavor has a luxurious high rise in north SanAntononio. MRO then re located many Andeavor employees to Ohio while others quit, joining rival Valero just a few miles down Loop 1604.

the oil price and MRO shares peaked just three months later in the summer of 21018.

After a few months above its declining 200 week MA in red, the bear market in oil resumed taking MRO and the rest of the energy complex to new lows. Oil prices would eventually go negative. 

MRO shares tumbled to a new low under  $5.  MRO is laying off 12,000 employees. No doubt this includes many which cost $23 billion just two years ago, not to mention those they did no buy who elected to stay in San Antonio. Now read the news release just two years later.

https://www.deccanherald.com/business/top-us-oil-refiner-marathon-petroleum-to-lay-off-12-of-workforce-895573.html

So here is the lesson of socionomics in one graph.  Positive mood brings inclusion and mergers in  2018. In the aftermath, just as with the skyscraper theory, layoffs occur as MRO scrambles to adjust to the new reality of the refining industry.

To top this off read page B5 in the Weekend WSJ. A full page and graph details how the CEOS of such firms have delivered negative returns between 39 and 55% for shareholders. Yet all four, Cabot, Devon MRO, Apache,  got raises and make $11 M a year or more. Where is Board Governance?