repsol ypf case study solution

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Repsol and YPF (A): A Perfect Marriage?

Back in 1999, the Spanish oil company Repsol purchased 98 percent of the Argentine oil company YPF’s shares for more than $15 billion and changed its name to Repsol-YPF. At the time, the New York Times said the deal “appears to be a perfect marriage” and asked, “Repsol-YPF: As Good as It Gets?” However, on April 16, 2012, that “perfect marriage” was effectively annulled when Argentine president Cristina Fernández de Kirchner announced that her government was expropriating YPF. “The model chosen for the future of YPF is not nationalization,” said Fernández, “but recovery of sovereignty and control of hydrocarbons.”

This case explores, in three parts, the background to the expropriation of YPF; the responses considered by Repsol; and Repsol’s ultimate decision to fight the expropriation, which resulted in its receiving $5 billion in guaranteed bonds from the Argentine government.

Also see:  P90 (B): Repsol and YPF (B): Considering Options and  P90 (C): Repsol and YPF (C): Recovering Value .

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Repsol and YPF: a perfect solution Harvard Case Solution & Analysis

Home >> Harvard Case Study Analysis Solutions >> Repsol and YPF: a perfect solution

Introduction

YPF is an oil and Gas producing company which was established in Argentina. The company was first nationalized by the government. However, after the economic instability in the company, foreign investment in public company,in whichYPF was also included, was offered. Repsol, interested in foreign investment , purchased 98%shares of YPF.

In 1999, the Repsol, which is a Spanish oil company, purchased 98% shares of YPF worth $15 billion. After acquisition, name of the company was changed to Repsol-YPF. This deal and acquisition of YPF was said to be the “perfect marriage”.

However, in 2002, it was announced that government is expropriating YPF as it is the sovereign power producing company of the state. Moreover, the political and economic condition of the country was being soworse that it was essential for the Government to take such steps in order to maintain public interest.

The step of seizing YPF’s shares has many political and economic risks that are related to the government’s decision. Moreover, the Repsol can also take legal steps against the government of Argentina thatwould be unfavorable for the situation that is going on in the country.

Question 1: was it a good idea for Repsol to enter Argentina in 1999 or should it has seen this coming?

Repsol entered into international market in 1999, in order to stream upwards. One of the international energy producing market contains Argentina, in which the company chose to buy 98% shares of YPF, which is said to be one of the most oil and gas producing company in the country/ however, after small period of time, Argentina faced bad economic situation with the currency crises. This inflation resulted in changing of political situation. The changing in economic and political situation caused the change in government. As a result, the new government announced to expropriate the YPF, which means the takeover of YPF for public interest.

However, Repsol should have done pre shares purchasing analysis of company and the country. That would inform the company to be sure about the country’s political and economicstates that are going to change soon. Moreover, the Repsol should have entered country where there is a developed economy and are not facing any kinds of crises so that there would be secure and profitable investment.

The loss of Repsol investment in YPF can be recovered by filing law suit against Argentina. Moreover, the compensation money can also be demanded by the Government of Argentina that would help to cover theloss faced by Repsol in order to investing in Argentina private company...................

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Structuring Repsol’s acquisition of YPF S.A (A). Case Solution & Answer

Home » Case Study Analysis Solutions » Structuring Repsol’s acquisition of YPF S.A (A).

Structuring  Repsol’s acquisition of YPF S.A (A). Case Solution

Significant of expected synergies and restructuring effect.

The expected quantitative significance synergies and restructuring effect is that the after-tax cost saving of is $350 million, by 1998 1.6% in cost reduction. The capital expenditure will also reduce by $2 billion in 2000 from $15.6 to $13.6 billion in 1998. The merger will decrease the lifting cost of YPF by 4.6% and so will the test drilling activities, and the installation of new technology will decrease the finding cost by 25%. So as the result of this merger; the synergy will be created, which will increase the production of gas, decrease the cost of finding and will also yield $2.5 billion by divesting non-core business in 2002.

So this deal of acquisition is good for the shareholders of Repsol, because it shows the strategic fit.It is so because Repsol will also have a significantly better business balance as a unified company as YPF is getting revenue from refining activities and gasoline stations mostly, so the firm has a large number of reserves for exploration as well as the production of oil. So Repsol could get benefit from the reserves owned by YPF.

 The price that Cortina proposes to offer to YPF shareholders

The proposed price to YPF’s shareholders was $44.78 per share, but the price of the DFC model is $13 per share as per the result. Repsol overpays to the shareholders of YPF, and even after adding the synergy after merger; the price of stock is $27.8, which means Repsol is overpaying to its shareholders for the stocks of YPF.

Current price of Repsol shares in the market

The actual price of the stock is $7.79, which is calculated by dividing the book value of shareholders equity in 1998,(given in the exhibit 3) by the number of outstanding shares in the same year. The current value of Repsol’s share is between $16and$18, as shown in the prices per share graph in exhibit 11. The stock is undervalued as compared to the price which we evaluated by using the DCF model, such as: $21.51 per share. The calculation is done in excel sheet exhibit 12. We discounted the given free cash flow at the WACC of Repsol 8.1%, summed the discounted cash flows and came to the equity value of $19355 million by deducting the total long-term debt of Repsol in 1998 from the enterprise value. The number of shares outstanding was 900 million, so by diving equity value to the number of outstanding shares; we found the share value of $21.51 per share.

 Relative advantages and disadvantages of offering to the shareholders of YPF

Advantages & disadvantages of cash financing:.

The significant advantage of cash financing is thatit is cheaper as compared to equity. There are also other benefits of cash financing, such as:adecrease in the capital cost after combination, tax shield benefits as well as creating value to the stockholders. Cash financing will decrease the risk of the YRF’s shareholders, which they will be exposed to after getting the stock percentage.

On the other hand,a full cash offer will increase the leverage of Repsol, which will decrease the rating grade of debt, as a result of which the cost of debt financing will increase, because debt will be risky to the investors. This option will also decrease the ability of Repsol to raise funds in the future when unforeseen financial need will arise, which also produce a negative signal to the investors. (David Rodeck, 2017)………………………

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Structuring Repsols Acquisition Of Ypf S.A. V. 2.5

Subjects Covered Financial strategy Mergers & acquisitions

by Robert F. Bruner, Pablo Ciano, Fernanda Pasquarelli

Source: Darden School of Business

30 pages. Publication Date: Feb 02, 2000. Prod. #: UV2479-PDF-ENG

Structuring Repsol’s Acquisition Of Ypf S.A. V. 2.5 Harvard Case Study Solution and HBR and HBS Case Analysis

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Structuring Repsol s Acquisition of YPF S A A Case Study Solution

Posted by John Berg on Feb-16-2018

Introduction

Structuring Repsol s Acquisition of YPF S A A Case Study is included in the Harvard Business Review Case Study. Therefore, it is necessary to touch HBR fundamentals before starting the Structuring Repsol s Acquisition of YPF S A A case analysis. HBR will help you assess which piece of information is relevant. Harvard Business review will also help you solve your case. Thus, HBR fundamentals assist in easily comprehending the case study description and brainstorming the Structuring Repsol s Acquisition of YPF S A A case analysis. Also, a major benefit of HBR is that it widens your approach. HBR also brings new ideas into the picture which would help you in your Structuring Repsol s Acquisition of YPF S A A case analysis.

To write an effective Harvard Business Case Solution, a deep Structuring Repsol s Acquisition of YPF S A A case analysis is essential. A proper analysis requires deep investigative reading. You should have a strong grasp of the concepts discussed and be able to identify the central problem in the given HBR case study. It is very important to read the HBR case study thoroughly as at times identifying the key problem becomes challenging. Thus by underlining every single detail which you think relevant, you will be quickly able to solve the HBR case study as is addressed in Harvard Business Case Solution.

Problem Identification

The first step in solving the HBR Case Study is to identify the problem. A problem can be regarded as a difference between the actual situation and the desired situation. This means that to identify a problem, you must know where it is intended to be. To do a Structuring Repsol s Acquisition of YPF S A A case study analysis and a financial analysis, you need to have a clear understanding of where the problem currently is about the perceived problem.

For effective and efficient problem identification,

• A multi-source and multi-method approach should be adopted.
• The problem identified should be thoroughly reviewed and evaluated before continuing with the case study solution.
• The problem should be backed by sufficient evidence to make sure a wrong problem isn't being worked upon.

Problem identification, if done well, will form a strong foundation for your Structuring Repsol s Acquisition of YPF S A A Case Study. Effective problem identification is clear, objective, and specific. An ambiguous problem will result in vague solutions being discovered. It is also well-informed and timely. It should be noted that the right amount of time should be spent on this part. Spending too much time will leave lesser time for the rest of the process.

Structuring Repsol s Acquisition of YPF S A A Case Analysis

Once you have completed the first step which was problem identification, you move on to developing a case study answers. This is the second step which will include evaluation and analysis of the given company. For this step, tools like SWOT analysis, Porter's five forces analysis for Structuring Repsol s Acquisition of YPF S A A, etc. can be used. Porter’s five forces analysis for Structuring Repsol s Acquisition of YPF S A A analyses a company’s substitutes, buyer and supplier power, rivalry, etc.

To do an effective HBR case study analysis, you need to explore the following areas:

1. Company history:

The Structuring Repsol s Acquisition of YPF S A A case study consists of the history of the company given at the start. Reading it thoroughly will provide you with an understanding of the company's aims and objectives. You will keep these in mind as any Harvard Business Case Solutions you provide will need to be aligned with these.

2. Company growth trends:

This will help you obtain an understanding of the company's current stage in the business cycle and will give you an idea of what the scope of the solution should be.

3. Company culture:

Work culture in a company tells a lot about the workforce itself. You can understand this by going through the instances involving employees that the HBR case study provides. This will be helpful in understanding if the proposed case study solution will be accepted by the workforce and whether it will consist of the prevailing culture in the company.

Structuring Repsol s Acquisition of YPF S A A Financial Analysis

The third step of solving the Structuring Repsol s Acquisition of YPF S A A Case Study is Structuring Repsol s Acquisition of YPF S A A Financial Analysis. You can go about it in a similar way as is done for a finance and accounting case study. For solving any Structuring Repsol s Acquisition of YPF S A A case, Financial Analysis is of extreme importance. You should place extra focus on conducting Structuring Repsol s Acquisition of YPF S A A financial analysis as it is an integral part of the Structuring Repsol s Acquisition of YPF S A A Case Study Solution. It will help you evaluate the position of Structuring Repsol s Acquisition of YPF S A A regarding stability, profitability and liquidity accurately. On the basis of this, you will be able to recommend an appropriate plan of action. To conduct a Structuring Repsol s Acquisition of YPF S A A financial analysis in excel,

• Past year financial statements need to be extracted.
• Liquidity and profitability ratios to be calculated from the current financial statements.
• Ratios are compared with the past year Structuring Repsol s Acquisition of YPF S A A calculations
• Company’s financial position is evaluated.

Another way how you can do the Structuring Repsol s Acquisition of YPF S A A financial analysis is through financial modelling. Financial Analysis through financial modelling is done by:

• Using the current financial statement to produce forecasted financial statements.
• A set of assumptions are made to grow revenue and expenses.
• Value of the company is derived.

Financial Analysis is critical in many aspects:

• Decision Making and Strategy Devising to achieve targeted goals- to determine the future course of action.
• Getting credit from suppliers depending on the leverage position- creditors will be confident to supply on credit if less company debt.
• Influence on Investment Decisions- buying and selling of stock by investors.

Thus, it is a snapshot of the company and helps analysts assess whether the company's performance has improved or deteriorated. It also gives an insight about its expected performance in future- whether it will be going concern or not. Structuring Repsol s Acquisition of YPF S A A Financial analysis can, therefore, give you a broader image of the company.

Structuring Repsol s Acquisition of YPF S A A NPV

Structuring Repsol s Acquisition of YPF S A A's calculations of ratios only are not sufficient to gauge the company performance for investment decisions. Instead, investment appraisal methods should also be considered. Structuring Repsol s Acquisition of YPF S A A NPV calculation is a very important one as NPV helps determine whether the investment will lead to a positive value or a negative value. It is the best tool for decision making.

There are many benefits of using NPV:

• It takes into account the future value of money, thereby giving reliable results.
• It considers the cost of capital in its calculations.
• It gives the return in dollar terms simplifying decision making.

The formula that you will use to calculate Structuring Repsol s Acquisition of YPF S A A NPV will be as follows:

Present Value of Future Cash Flows minus Initial Investment

Present Value of Future cash flows will be calculated as follows:

PV of CF= CF1/(1+r)^1 + CF2/(1+r)^2 + CF3/(1+r)^3 + …CFn/(1+r)^n

where CF = cash flows r = cost of capital n = total number of years.

Cash flows can be uniform or multiple. You can discount them by Structuring Repsol s Acquisition of YPF S A A WACC as the discount rate to arrive at the present value figure. You can then use the resulting figure to make your investment decision. The decision criteria would be as follows:

• If Present Value of Cash Flows is greater than Initial Investment, you can accept the project.
• If Present Value of Cash Flows is less than Initial Investment, you can reject the project.

Thus, calculation of Structuring Repsol s Acquisition of YPF S A A NPV will give you an insight into the value generated if you invest in Structuring Repsol s Acquisition of YPF S A A. It is a very reliable tool to assess the feasibility of an investment as it helps determine whether the cash flows generated will help yield a positive return or not.

However, it would be better if you take various aspects under consideration. Thus, apart from Structuring Repsol s Acquisition of YPF S A A’s NPV, you should also consider other capital budgeting techniques like Structuring Repsol s Acquisition of YPF S A A’s IRR to evaluate and fine-tune your investment decisions.

Structuring Repsol s Acquisition of YPF S A A DCF

Once you are done with calculating the Structuring Repsol s Acquisition of YPF S A A NPV for your finance and accounting case study, you can proceed to the next step, which involves calculating the Structuring Repsol s Acquisition of YPF S A A DCF. Discounted cash flow (DCF) is a Structuring Repsol s Acquisition of YPF S A A valuation method used to estimate the value of an investment based on its future cash flows. For a better presentation of your finance case solution, it is recommended to use Structuring Repsol s Acquisition of YPF S A A excel for the DCF analysis.

To calculate the Structuring Repsol s Acquisition of YPF S A A DCF analysis, the following steps are required:

• Calculate the expected future cash inflows and outflows.
• Set-off inflows and outflows to obtain the net cash flows.
• Find the present value of expected future net cash flows using a discount rate, which is usually the weighted-average cost of capital (WACC).
• If the value calculated through Structuring Repsol s Acquisition of YPF S A A DCF is higher than the current cost of the investment, the opportunity should be considered
• If the current cost of the investment is higher than the value calculated through DCF, the opportunity should be rejected

Structuring Repsol s Acquisition of YPF S A A DCF can also be calculated using the following formula:

DCF= CF1/(1+r)^1 + CF2/(1+r)^2 + CF3/(1+r)^3 + …CFn/(1+r)^n

In the formula:

• CF= Cash flows
• R= discount rate (WACC)

Structuring Repsol s Acquisition of YPF S A A WACC

When making different Structuring Repsol s Acquisition of YPF S A A's calculations, Structuring Repsol s Acquisition of YPF S A A WACC calculation is of great significance. WACC calculation is done by the capital composition of the company. The formula will be as follows:

Weighted Average Cost of Capital = % of Debt * Cost of Debt * (1- tax rate) + % of equity * Cost of Equity

You can compute the debt and equity percentage from the balance sheet figures. For the cost of equity, you can use the CAPM model. Cost of debt is usually given. However, if it isn't mentioned, you can calculate it through market weighted average debt. Structuring Repsol s Acquisition of YPF S A A’s WACC will indicate the rate the company should earn to pay its capital suppliers. Structuring Repsol s Acquisition of YPF S A A WACC can be analysed in two ways:

• From the company's perspective, it can be analysed as the cost to be paid to the capital providers also known as Cost of Capital
• From an investor' perspective, if the expected return on the investment exceeds Structuring Repsol s Acquisition of YPF S A A WACC, the investor will go ahead with the investment as a positive value would be generated.

Structuring Repsol s Acquisition of YPF S A A IRR

After calculating the Structuring Repsol s Acquisition of YPF S A A WACC, it is necessary to calculate the Structuring Repsol s Acquisition of YPF S A A IRR as well, as WACC alone does not say much about the company’s overall situation. Structuring Repsol s Acquisition of YPF S A A IRR will add meaning to the finance solution that you are working on. The internal rate of return is a tool used in investment appraisal to calculate the profitability of prospective investments. IRR calculations are dependent on the same formula as Structuring Repsol s Acquisition of YPF S A A NPV.

There are two ways to calculate the Structuring Repsol s Acquisition of YPF S A A IRR.

• By using a Structuring Repsol s Acquisition of YPF S A A Excel Spreadsheet: There are in-built formulae for calculating IRR.

IRR= R + [NPVa / (NPVa - NPVb) x (Rb - Ra)]

In this formula:

• Ra= lower discount rate chosen
• Rb= higher discount rate chosen
• NPVa= NPV at Ra
• NPVb= NPV at Rb

Structuring Repsol s Acquisition of YPF S A A IRR impacts your finance case solution in the following ways:

• If IRR>WACC, accept the alternative
• If IRR<WACC, reject the alternative

Structuring Repsol s Acquisition of YPF S A A Excel Spreadsheet

All your Structuring Repsol s Acquisition of YPF S A A calculations should be done in a Structuring Repsol s Acquisition of YPF S A A xls Spreadsheet. A Structuring Repsol s Acquisition of YPF S A A excel spreadsheet is the best way to present your finance case solution. The Structuring Repsol s Acquisition of YPF S A A Calculations should be presented in Structuring Repsol s Acquisition of YPF S A A excel in such a way that the analysis and results can be distinguished to the viewers. The point of Structuring Repsol s Acquisition of YPF S A A excel is to present large amounts of data in clear and consumable ways. Presenting your data is also going to make sure that you don't have misinterpretations of the data.

To make your Structuring Repsol s Acquisition of YPF S A A calculations sheet more meaningful, you should:

• Think about the order of the Structuring Repsol s Acquisition of YPF S A A xls worksheets in your finance case solution
• Use more Structuring Repsol s Acquisition of YPF S A A xls worksheets and tables as will divide the data that you are looking at in sections.
• Choose clarity overlooks
• Keep your timeline consistent
• Organise the information flow
• Clarify your sources

The following tips and bits should be kept in mind while preparing your finance case solution in a Structuring Repsol s Acquisition of YPF S A A xls spreadsheet:

• Avoid using fixed numbers in formulae
• Avoid hiding data
• Useless and meaningful colours, such as highlighting negative numbers in red
• Label column and rows
• Correct your alignment
• Keep formulae readable
• Strategically freeze header column and row

Structuring Repsol s Acquisition of YPF S A A Ratio analysis

After you have your Structuring Repsol s Acquisition of YPF S A A calculations in a Structuring Repsol s Acquisition of YPF S A A xls spreadsheet, you can move on to the next step which is ratio analysis. Ratio analysis is an analysis of information in the form of figures contained in the financial statements of a company. It will help you evaluate various aspects of a company's operating and financial performance which can be done in Structuring Repsol s Acquisition of YPF S A A Excel.

To conduct a ratio analysis that covers all financial aspects, divide the analysis as follows:

• Liquidity Ratios: Liquidity ratios gauge a company's ability to pay off its short-term debt. These include the current ratio, quick ratio, and working capital ratio.
• Solvency ratios: Solvency ratios match a company's debt levels with its assets, equity, and earnings. These include the debt-equity ratio, debt-assets ratio, and interest coverage ratio.
• Profitability Ratios: These show how effectively a company can generate profits through its operations. Profit margin, return on assets, return on equity, return on capital employed, and gross margin ratio is examples of profitability ratios.
• Efficiency ratios: Efficiency ratios analyse how efficiently a company uses its assets and liabilities to boost sales and increase profits.
• Coverage Ratios: These ratios measure a company's ability to make the interest payments and other obligations associated with its debts. Examples include times interest earned ratio and debt-service coverage ratio.
• Market Prospect Ratios: These include dividend yield, P/E ratio, earnings per share, and dividend payout ratio.

Structuring Repsol s Acquisition of YPF S A A Valuation

Structuring Repsol s Acquisition of YPF S A A Valuation is a very fundamental requirement if you want to work out your Harvard Business Case Solution. Structuring Repsol s Acquisition of YPF S A A Valuation includes a critical analysis of the company's capital structure – the composition of debt and equity in it, and the fair value of its assets. Common approaches to Structuring Repsol s Acquisition of YPF S A A valuation include

• DDM is an appropriate method if dividends are being paid to shareholders and the dividends paid are in line with the earnings of the company.
• FCFF is used when the company has a combination of debt and equity financing.
• FCFE, on the other hand, shows the cash flow available to equity holders only.

These three methods explained above are very commonly used to calculate the value of the firm. Investment decisions are undertaken by the value derived.

Structuring Repsol s Acquisition of YPF S A A calculations for projected cash flows and growth rates are taken under consideration to come up with the value of firm and value of equity. These figures are used to determine the net worth of the business. Net worth is a very important concept when solving any finance and accounting case study as it gives a deep insight into the company's potential to perform in future.

Alternative Solutions

After doing your case study analysis, you move to the next step, which is identifying alternative solutions. These will be other possibilities of Harvard Business case solutions that you can choose from. For this, you must look at the Structuring Repsol s Acquisition of YPF S A A case analysis in different ways and find a new perspective that you haven't thought of before.

Once you have listed or mapped alternatives, be open to their possibilities. Work on those that:

• need additional information
• are new solutions
• can be combined or eliminated

After listing possible options, evaluate them without prejudice, and check if enough resources are available for implementation and if the company workforce would accept it.

For ease of deciding the best Structuring Repsol s Acquisition of YPF S A A case solution, you can rate them on numerous aspects, such as:

• Feasibility
• Suitability
• Flexibility

Implementation

Once you have read the Structuring Repsol s Acquisition of YPF S A A HBR case study and have started working your way towards Structuring Repsol s Acquisition of YPF S A A Case Solution, you need to be clear about different financial concepts. Your Mondavi case answers should reflect your understanding of the Structuring Repsol s Acquisition of YPF S A A Case Study.

You should be clear about the advantages, disadvantages and method of each financial analysis technique. Knowing formulas is also very essential or else you will mess up with your analysis. Therefore, you need to be mindful of the financial analysis method you are implementing to write your Structuring Repsol s Acquisition of YPF S A A case study solution. It should closely align with the business structure and the financials as mentioned in the Structuring Repsol s Acquisition of YPF S A A case memo.

You can also refer to Structuring Repsol s Acquisition of YPF S A A Harvard case to have a better understanding and a clearer picture so that you implement the best strategy. There are a number of benefits if you keep a wide range of financial analysis tools at your fingertips.

• Your Structuring Repsol s Acquisition of YPF S A A HBR Case Solution would be quite accurate
• You will have an option to choose from different methods, thus helping you choose the best strategy.

Recommendation and Action Plan

Once you have successfully worked out your financial analysis using the most appropriate method and come up with Structuring Repsol s Acquisition of YPF S A A HBR Case Solution, you need to give the final finishing by adding a recommendation and an action plan to be followed. The recommendation can be based on the current financial analysis. When making a recommendation,

• You need to make sure that it is not generic and it will help in increasing company value
• It is in line with the case study analysis you have conducted
• The Structuring Repsol s Acquisition of YPF S A A calculations you have done support what you are recommending
• It should be clear, concise and free of complexities

Also, adding an action plan for your recommendation further strengthens your Structuring Repsol s Acquisition of YPF S A A HBR case study argument. Thus, your action plan should be consistent with the recommendation you are giving to support your Structuring Repsol s Acquisition of YPF S A A financial analysis. It is essential to have all these three things correlated to have a better coherence in your argument presented in your case study analysis and solution which will be a part of Structuring Repsol s Acquisition of YPF S A A Case Answer.

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Repsol And Ypf A Perfect Solution 2 Case Analysis

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Repsol And Ypf A Perfect Solution 2 Case Study Solution and Analysis

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Structuring Repsols Acquisition Of Ypf S.A. V. 2.5

Subjects Covered Financial strategy Mergers & acquisitions

by Robert F. Bruner, Pablo Ciano, Fernanda Pasquarelli

Source: Darden School of Business

30 pages. Publication Date: Feb 02, 2000. Prod. #: UV2479-PDF-ENG

Structuring Repsol’s Acquisition Of Ypf S.A. V. 2.5 Harvard Case Study Solution and HBR and HBS Case Analysis

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