Repsol YPF valuation
CFS WRITE UP ON CASE 6
BY SUSHMA T
Session 6 – Structuring Repsol’s Acquisition of YPF
Suggested Questions:
1) How significant are the expected synergies and restructuring effects? Please prepare an estimate of the value of these.
For Repsol and its shareholders, the YPF acquisition deal is seen as an ideal strategic match. The Spanish oil company gets most of its revenues from activities like refining and gasoline stations, and must buy much of its crude oil from others, while YPF owns substantial reserves because its activities are dominated by exploration and production of oil. As a united company, Repsol will have a much better balance of business, quadrupling its reserves, and vaulting into the big leagues of the top 10 international players. But with the reserves of YPF, it will instead benefit from rising prices, and expand its activities to other countries in Latin America.
Repsol-YPF seeks to achieve a balance between upstream and downstream operations, position itself as a market leader in Latin America, achieve operating and capital expenditure synergies and consolidate its business scale and financial strength. As part of its integration strategy, Repsol-YPF will begin to dispose of select assets which do not correspond to its core businesses outlined above or to its core geographic areas which include Spain, Latin America and North Africa.
Synergies Estimate
Cost savings after tax of $350 million by 2000, 1.6% cost savings in 1998, reduction in capital expenditure from $15.6 billion to $13.6 billion, reduced finding costs by 25.0%, as a result of decreased test drilling activity and the implementation of new technology, and lifting costs by 4.6%, as a result of synergies with YPF’s operations and increased levels for gas production, which has lower lifting costs than oil production, divesting non-core assets to yield $2.5 billion in 2002.
2) Please assess the price that Cortina proposes to offer to YPF shareholders. At $44.78 per
BY SUSHMA T
Session 6 – Structuring Repsol’s Acquisition of YPF
Suggested Questions:
1) How significant are the expected synergies and restructuring effects? Please prepare an estimate of the value of these.
For Repsol and its shareholders, the YPF acquisition deal is seen as an ideal strategic match. The Spanish oil company gets most of its revenues from activities like refining and gasoline stations, and must buy much of its crude oil from others, while YPF owns substantial reserves because its activities are dominated by exploration and production of oil. As a united company, Repsol will have a much better balance of business, quadrupling its reserves, and vaulting into the big leagues of the top 10 international players. But with the reserves of YPF, it will instead benefit from rising prices, and expand its activities to other countries in Latin America.
Repsol-YPF seeks to achieve a balance between upstream and downstream operations, position itself as a market leader in Latin America, achieve operating and capital expenditure synergies and consolidate its business scale and financial strength. As part of its integration strategy, Repsol-YPF will begin to dispose of select assets which do not correspond to its core businesses outlined above or to its core geographic areas which include Spain, Latin America and North Africa.
Synergies Estimate
Cost savings after tax of $350 million by 2000, 1.6% cost savings in 1998, reduction in capital expenditure from $15.6 billion to $13.6 billion, reduced finding costs by 25.0%, as a result of decreased test drilling activity and the implementation of new technology, and lifting costs by 4.6%, as a result of synergies with YPF’s operations and increased levels for gas production, which has lower lifting costs than oil production, divesting non-core assets to yield $2.5 billion in 2002.
2) Please assess the price that Cortina proposes to offer to YPF shareholders. At $44.78 per