Corporate Finance - Coursework

This report analyzes the acquisition of YPF by Repsol, focusing on corporate finance strategies, market implications, and the overall impact on the oil industry. It discusses the strategic position of both companies, the financial aspects of the merger, and the challenges faced during the acquisition process. The report concludes with insights into the effectiveness of the merger and its significance in the context of corporate finance.

Corporate Finance -
Coursework

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................1
INTRODUCTION...........................................................................................................................2
1.1 Strategic position of Repsol and its strategic options:..........................................................2
2. YPF is worth as an independent company and potential value after acquiring by the Repsol:
.....................................................................................................................................................6
Q3: Key factors those are effect the level of acquisition............................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12

EXECUTIVE SUMMARY
Nowadays, this has been observed that each company is applying to make out certain
tools which help out to make certain effective tool which would help the firm to gain sustainable
development. Although, M&A is one of the best effective tool which would help out to make
certain things effective and efficient tool. Acquisition is the tool to redirect and reshape corporate
strategy which has never been higher. There are so many managers today which purchase a firm
for accessing to markets, goods, technology advancement, resources, or the skilled management
talent which is less risky and faster than attainment the similar objectives via inner efforts.
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INTRODUCTION
Under this case, this can be observed that the Repsol is intending to buy the YPF
company as Repsol is one of the dominant oil organisation which have its registered office at
Spain. For taking oil reserve and benefits of broad level, Cortina had embarked on the strategy of
acquiring oil assets via Latin America (Brealey and et. al., 2012). He started to take Yacimientos,
Petroliferos Fiscales S.A. (YPF) at the Argentine government declared that this will offer its
block of shares. As, the company was the highest oil organisation throughout the nation, and
twelfth biggest in reserves. Management of YPF had resisted go through a friendly acquisition.
To fulfil a takeover of the organisation, Cortina will have required to appeal to the shareholders
in the form of tender offer in order to buy their shares. Unsolicited tender offers were highly rare
events in the cross-border M&A normally and most importantly between emerging and
developed countries.
1.1 Strategic position of Repsol and its strategic options:
In the international business corporation, organisations need strategic thinking and only
by forming effective strategies which could become strategically competitive. A business
strategy is a complete master plan which incorporate how firm would attain its mission and
objectives (Fracassi, 2011). Strategy is presuming to be the important as this is universal in
nature. This assist companies to make pace with the dynamic environment. This enhance
motivation of the employees and reinforce decision making. This incorporates the basis for
applying the actions.
The main intention of this paper is to make and assess the behaviour of the Argentine
gasoline market and to assess competitive effects on that market of merger between Repsol and
YPF, which emerge in 1999. By doing so, there are following answer which are required to be
answer in the following questions:
(a). Did merger have direct influence on the prices and quantities which are traded in the
market?
(b). What kind of market structure elaborates the behaviour of the industry better?
(c). Did the structure vary as a consequence of the merger?
(d). Which are the welfare implications of that change?
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For answering these kinds of questions, they could implement data set which includes
monthly gasoline price information by province for YPF during 1998-2000. We likewise
implement data on the quantities, market stake, oil prices, population and GDP (Hillier and et.
al., 2014).
This research about effect of Repsol-YPF merger on the Argentine gasoline market which
is mostly a clinic econometric case study in the Pauter’s classification. It crucially could be
appraised by comparing it to some other things which can enter into the similar category. This is
worth value that the acquisition of YPF by Spanish company Repsol is likewise crucial by itself.
This is biggest merger in the Argentine history. However, this can be said that the merger
influenced the market in an effective manner. This was crucial to Repsol's management which an
offer be layout which will attain the support of YPF's shareholders, and repel potential
contenders. A tender offers of this magnitude will be highest by the Spanish organisation, and
also in the energy sector.
Repsol is the international energy firm which is based in Madrid, Spain. This makes out
upstream and downstream activities via entire planet. There are almost higher than 24000
employees throughout the planet. During 1999, Repsol acquired 15% stake of YPF from the
Argentine government which was one of the great deal during that time. Analysts rightly
observed that the price was fair and greeted strategic fit between two organisations, Analysts
rightly observed that this can be said that this will render balance to Repsol’s overexposure in
refining and marketing while YPF had concentrated on exploration and goods. The main
acquisition better positioned Repsol like a multinational firm. Repsol’s acquisition of YPF
likewise enhanced its capital to 288 million shares throughout the planet. Repsol’s is the
company which includes in one of the top organisation in the oil and gas industry. The cited
organisation throughout the entire value chain: exploration and manufacturing, transformation,
development and the marketing of the energy which is more effective and sustainable and
competitive for millions of people (Gullifer and Payne, 2015).
This is presuming to be the goods throughout 87 nations and operates in 37 of them,
forming us a planet us a planet renowned energy organisation. During four years, this can have
invested that over 350million euros in looking for new ways in order to produce sustainable
energy. Strategic plan ensure strength and the capability to form value in the provided situations,
via efficiency and active portfolio management. During 2012, the Argentina federal government
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decreed the intervention of YPF. The share price of YPF down fall to 29% the day after. After
two weeks, AP permitted the expropriation of 51% of the YPF shares owned by Repsol. This had
a 57.4% stake.
During 2012, Argentine Federal government pronounced intervention of YPF. The share price of
YPF gro
Main shareholders of YPF in April 2012:
Before the expropriation (%)
Number of Shares
Repsol YPF 225,890,313 57.43
Peterson Group 100,145,077 25.46
Public 67,225,593 17.09
AFPG 11,388 0.003
Employee Fund 40,422 0.01
Total 393,312,793
Number of Shares After the expropriation
Repsol YPF 225,890,313 6.43%
Peterson Group 100,145,077 25.46%
Public 67,225,593 17.09%
AFPG 11,388 51.00%
Employee Fund 40,422 0.010%
Total 393,312,793
From the above mentioned table, this is rightly stated that the company before the
expropriation and after the expropriation is mentioned. Before the Expropriation, the Repsol YPF
have 57.43% shares but after the expropriation 6.43%.
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Figure 1Repsol strategic plan
(Source: Strategic planning, 2014)
A tribunal would identify the compensation. however, Respol would attain for its YPF shares.
Advancement in the technologies have accessed the manufacturing of oil and gas from earlier
untapped shale reservoirs. These kinds of technological advancement were introduced for the
first time in 1998 in the U.S. Over the last decade shale gas manufacturing in the US has
advanced and it presently have stake of 25% of entire domestic production (Eccles, Krzus,
Rogers and Serafeim, 2012).
Mergers and acquisitions is normal term which simply means to the consolidation of
organisation or assets. M&A could cover diverse transactions like merger, acquisitions,
consolidations, tender offers, buying of assets and management acquisitions. In whole cases, two
firms are enclosed. The main term M&A likewise refers to the division during the financial
institutions which deals with M&A.
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Enterprise value is implemented as the criteria of the YPF worth for the potential
acquirer. To forecast the EV, this is essential to:
-Frame YPF's Free Cash Flow;
-Measuring the weighted Average Cost of Capital (WACC) for YPF to discounted YPF cash-
flow.
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Pre and post-acquisition structure are mentioned above. This is the most effective tool so
that the company needs to make certain tools effective and efficient.
2. YPF is worth as an independent company and potential value after acquiring by the Repsol:
YPF is Argentina’s leading energy organisation. This is the nation’s most crucial
manufacturer of the hydrocarbons and refined goods, the biggest investor, and the best
generators of employment- more than 46000 people are mostly directly or indirectly by the
organisation (Balance, 2014).
Cited company is a leader in corporate governance, determining its transparency,
shareholders’ contribution, adequate performance of its board of directors and its external
auditors of employment which is more than 46000 employed by the organisation.
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This operates an entire integrated chain of oil and gas organisation, with market
leadership in entire segments of its activity. To grow its firm and get the effective corporate
governance level it desires, the organisation has a BODs which assumes management of the
organisation in a diligent and prudent manner, as per with effective business practice as per the
Argentine Corporation Law.
The board enables the strategic plan, and well as management objectives and annual
budgets, for which it assesses the investment and financial policies with the macro-economic
situation.
Throughout the board:
YPF normally has 17 consistent directors, and 5 are independent. This number of directors is
presuming to be an appropriate for the scope of the firm, and experience rendered by its
members is mostly positive for the firm’s management. Under this, shareholders are required that
the board of directors is bestowed on the individuals of the well identified domestic and global
solvency, know-how and expertise from the best varied corporate fields (Martínez-Sola, García-
Teruel and Martínez-Solano, 2014).
In the line with effective corporate governance practice, the board of director and applied
rule of ethics and convene implementing to the board and entire govern the convene the
organisation and its employees in regards with their positions and commercial relations.
Due to another part of its policies, YPF implemented a code of conduct of the
organisation and its employees with respect to their positions and business and professional
relations.
As other part of its policies, YPS enables and applied a code of conduct in the context of
the securities market- elaborating its system framework for action to stimulate transparency and
save legitimate interest of the investment community.
Stocks and shares:
YPF’s upstream operations covers of the exploration, emergence and manufacturing of
crude oil, natural gas and LPG. Downstream operations cover refining, marketing, transportation
and distribution of oil and a huge range of petroleum goods, petroleum derivatives,
petrochemicals, LPG. This is likewise active in the gas separation and natural gas distribution
industry- both directly and via its investment in diverse linked organisations.
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YPF is a stock corporation emerged as per the laws of the Republic of Argentine. This
was a state owned organisation until 1992, when Argentine government incorporated processes
for its privatisation. As per with the Privatisation Law, in July 1993 this fulfilled a global
offering of 160 Million Class D shares which earlier owned by the government. As an outcome
of that offering and other transactions, the Argentine government’s ownership interest in the
capital stock was limited from 100% to around 20% by the end of 1993 (Serfling, 2014).
Since 1999, organisation has been part of Repsol YPF, an combined oil and gas
organisation along-with headquarters in Spain, functioning throughout the planet. Repsol
maintained 99% of YPF capital stock from 2000 until 2008. In 2008, Peterson group Buy shares
reflecting 14.9% of the capital stock from Repsol YPF, and in 2011 enhanced to its stake to
25.46%.
Since 2010, Repsol YPF has sold around 16.57% of the organisation to the stock market.
In 2011, Repsole YPF maintained 57.43%, Peterson group maintain 25.46% and most of the
remainder is free-float traded in the New York Stock Exchange.
For Repsol and its shareholders, the YPF acquisition deal is assumes to be the observed
as an ideal strategic match (Boubakri and et. al., 2012).
Repsol is Spanish oil company which earns large number of revenue from its diversified
activities. The major business activities which are provide by Repsol are refining, gas online
stations. This organisation buy their most of the crude oil from others. The management wants to
acquire large number of stake in market. For this purpose, they wants to merge with another
company which provides synergies effect and helps in making the value of their organisation
double. For this purpose, management of Repsol decided to merge with YPF which has
substantial reserves and good stake in market. Repsol is one of the biggest company having
better balances of business, reserves and one of the biggest international player. By adding up the
reserves of YPF large number of benefits are derived by the management. Such benefits are
rising prices and growth of their future business activities in Latin America (Liu, Wei and Xie,
2014).
After merger, Repsol-YPF achieved a balance between their different operations which
provides opportunity to become market leader in Latin America and capture large market share.
This also contributes in attainment of competitive advantage and improvement of their financial
strength. As per the strategies which are prepared by the management of Repsol to dispose of
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selected assets which doesn't more profitable for their core business activities which are operates
in their main geographical areas of Spain, Latin America and North Africa.
Synergies Estimate
This includes about the estimation which is getting by Repsol after the merger with YPF.
The main of aim of management behind merger is to reduction of cost of operation's. After
paying tax in 2000, cost which is saved is $350 million. It is also observed that, due the effect of
synergies capital expenditure is also reduced from $15.6 billion to $ 13.6 billion. As per the
result of merger with YPF, noticed that there is increase in gas production, lowering lifting cost
then oil productions (Philippon, 2015).
The management of Repsol decided to pay $44.78 per share to the shareholders of YPF.
It is considered as fair price which is paid by the management of Repsol to shareholders in return
of their share in YPF.
Repsol is paying 10.472 billion dollars as premium for their diversification of business.
The formula which is used in collection of Adjusted PV is mentioned below:
EBIT
 Tax applicable on EBIT
= Net operating profit after tax
+ non cash items in EBIT
- Working capital changes
- Capital Expenditures
= Free cash Flow
Q3: Key factors those are effect the level of acquisition
In every business which is going for the acquisition of some other units needs to make
proper analysis of various aspects those are related with them. Corporate leaders are the one
which is working in order to make expansion of their market share, brand image or eyeing for
minimising total cost for Repsol Ltd. These are essential aspects for every business in order to
attain so business aims and objectives. The primary plan for doing so is to control and manage
resources in the manner to achieve organic development of an organisation (Eckbo and
Thorburn, 2013).
This situation is arises when two companies are planning to join together in exchange of
their operations. In case, Rapsol is associated with acquiring position of the company. There are
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various aspects that are required to influence merger and acquisition in accordance with cost and
revenue. It would be transferable with the permission of both the owners of the company. Some
of the crucial factors those are related with the acquisition of other oil and gas industry YPF. Few
of them are mention underneath:
Synergy: It has been seen that cost and revenue are considered as one of the vital factors
that can influence acquisition decision. A combination of other company is streamlines is more
effective functional units. Like accounting and finance, HR and other outside investor
relationships. Cost synergies are attain with the economic scale of operations that means that
huge company is able to negotiate with the perfect price. The better optimisation of the resources
can be utilise through using production capacities in more effective manner (Berger, Kick and
Schaeck, 2014).
Competitive advantage: Because of the acquisition of YPF the chances of gaining
competitive advantage become more low. In starting phase of Rapsol they are not able to cop up
with other competitors those are associated with the same lime of business. In the way to expand
their business in various parts of the country the main motive behind this to earn maximum
competitive advantage from other. Because of new business operations it will be difficult to
distribute slow customer base much overnight. It has been hard to digest for the customers to
believe in YPF business operations because of low market image.
Cost cutting: It is the another factors which is affecting the performance as well as
growth of the company. They are dealing in same sorts of products and service in accordance to
set up new business in the market. In order to create wide market base by providing job
opportunities to the employees they need to cut down some prices so that operating cost can be
enhanced. This will be difficult to gain economies of scale because of high production costs that
can help them to increase earning at very lower rates (Aktas, Croci and Petmezas, 2015).
Low shareholder value: There are certain ways by which shareholder value can get
affected because of acquisitions. This can be arises because of bad over-valuation or
inappropriate negotiation. There might be the chance of poor quality of due diligence. Absences
of integration planning. Hard to retain component which will be more target attractive in initial
phase of the company.
Government policies: It is essential for the company to follow all the set rules and
regulation which is made by the legal bodies in order to acquire any company. If these are not
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been followed in right manner then the chances of getting some sort of sever complication would
be faced by Rapsol (Strebulaev and Whited, 2013).
The total price paid during the takeover: A business that pays over the odds from its
mark will struggles to implement the investment works in very shorter period of time.
The complexity of the transaction: With the more complex acquisition process often
makes huge impacts on the profitably for an organisation. These are more harder to attain
because of the huge complexity arises in the course of exchanging any transaction whether
related with the acquisition of the company.
Threats:
Communication challenges: There are some specific threats those are related with the
acquisition of deals that can cause the Rapsol synergies to fail. Proper communication with
existing employees in order to work in a particular environment.
Culture challenges: These may occurs financial and include rationale costs. But fails to
consider cultural impacts those are presented with the acquisition deal (Vermaelen and Xu,
2014).
CONCLUSION
From the above project report, it has been concluded that corporate finance is an essential
aspects to determine various growth and performance of an organisation. This project provide
crucial information about acquisition regarding Rapsol and YPF company. Analysis of strategies
position of two company are mention clearly. Use of effective tools to identify reasonable cost
that would be offers to YPF. Specific factor those are related with the acquisition and threat
associated with them are discuss clearly under this project.
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REFERENCES
Books and Journals:
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