| BUSINESSWEEK ONLINE : MAY 17, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- LATIN AMERICA
This Bid Breaks a Big Latin Taboo (int'l edition) Will Repsol's offer for oil producer YPF go through? Welcome to the big time, Latin America. When Spanish oil company Repsol bid $13.4 billion to control Argentina's YPF on Apr. 30, it marked the region's entrance into the world of international megadeals. YPF's board announced that it was considering the offer and would meet again by May 13. Whether the company accepts the offer, holds out for more money, or looks for a rival bid, it appears inevitable that YPF will be sold to a foreign oil power. That in itself is a landmark for the region. Never before has such a large Latin company been purchased by a single buyer. Although $84 billion changed hands in mergers and acquisitions last year in Latin America, the majority was through the privatization of state-owned enterprises and the sale of family-run businesses. YPF, however, is a major-league player--the 12th-largest oil company in terms of proven reserves, with $5.5 billion in sales and a presence from Texas to Indonesia. ''It's logical to see this extension in Latin America of what is happening globally,'' says analyst Vinod Sehgal of SG Cowen Securities Corp. in New York. The handover of YPF will also break a taboo on foreign control of Latin American oil giants. Although banks, phone companies, and electric utilities have been sold in the 1990s, oil is generally viewed as a national patrimony and off-limits to outsiders. The Argentine government itself launched the process in January by selling 14.99% of YPF to Repsol. But few expected the Spanish company to make an unsolicited cash offer for all the outstanding shares--as YPF bylaws require if a bidder wants more than 15%. Now, Brazil's state-owned oil company Petrobras could follow YPF's path. In Chile, state-owned mining company Codelco might be privatized if leading candidate Ricardo E. Lagos wins December's Presidential elections. And foreign rivals may now eye strong regional players in telecom and transportation as takeover targets. Under President Carlos Saul Menem, who took office in 1989, Argentina has become more open to foreign influence than any other Latin country. Privatized in an initial offering in 1993, YPF has been one of the most widely traded American depositary receipts on the New York Stock Exchange. And CEO Roberto Monti has courted analysts and institutional investors. LATIN EXPANSION. Acquisition of YPF would catapult Repsol, whose 1998 sales totaled $22.2 billion, into the ranks of global petroleum players and give it an edge over rivals in South America. A deal would create an Iberian-Latin giant with a market cap of $26.6 billion, eighth among oil businesses. Repsol-YPF would also rank 10th in proven oil reserves, with 4.1 billion barrels, just behind Texaco Inc. ''This is an opportunity that comes along and isn't repeated,'' says Repsol Chairman Alfonso Cortina. For Repsol, a deal would crown a move into Latin America that already totals $5.5 billion in investments, including its 1996 purchase of a majority stake in Argentine oil company Astra. YPF sells about half the nation's oil and natural gas, and is a key gas supplier in South America. In recent years, YPF has expanded into Brazil, Chile, Peru, and Bolivia. YPF also owns Dallas-based Maxus Energy Corp., which has exploration sites in Indonesia and Ecuador. Will Repsol win YPF? Matched against recent oil mergers, Repsol's bid of $44.78 per share, or $4.65 per barrel of oil, is far below the $7.40 per barrel BP Amoco PLC bid for Arco, or the more than $8 per barrel Exxon Corp. offered Mobil Corp. The higher risk in Latin America is factored into YPF's price, analysts say. Repsol would have to raise its short-term debt to pay for YPF and sell $4 billion to $6 billion in new shares afterward. Still, YPF may press Repsol to raise its bid. It has hired Credit Suisse First Boston to analyze the offer. Whatever the outcome, Latin America's most prized companies will take a lesson from the Repsol-YPF tango. No matter what industry, more megadeals are coming for Latin companies. By Beth Rubenstein Keaveny in Buenos Aires and Ian Katz in Sao Paulo Latin America _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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