MW Petroleum Corporation
Situation Overview: Amoco Corporation conducted an extensive review of its cost structure and profitability, leading to major restructurings to better focus on its core businesses. The result of this was a divestment of the middle section of its assets along the marginal curve. Thus, creating MW Petroleum Corporation – a new, free-standing exploration and production oil and gas company. MW was offered to a number of targeted international petroleum concerns, but the most attractive offer came from Apache Corporation. In late 1990, the group of Amoco Corporation and Apache Corporation began talking in regards to the possible acquisition of MW Petroleum Corporation from Amoco to Apache. If the acquisition pushes through, it will provide Apache a great opportunity as well as becoming one of the largest acquisitions since MW’s size is two times larger compared to Apache’s current operation. Nonetheless, Apache must first carefully evaluate MW’s value to come up with a proposal that would be attractive for Amoco and profitable for Apache as well. The following paragraphs will discuss the latter. 1. In the lights of low oil and gas price in the market, big companies, such as Amoco seek to restructure in order to increase profitability. Amoco’s plans are to reduce its capital and exploration that are not generating significant returns or the company not having advantage with the returns. The intention of the company is to review its assets with an eye toward selling “unprofitable” properties or business lines that do not meet its objectives. Doing so, will allow Amoco to improve their operating efficiency. Apache Corporation’s strategy is “rationalize and reconfigure” by acquiring “inefficient” assets and turning them around via cross cutting. The turnover assets can be retained or sold to other buyers. With such efforts, Apache is attempting to improve their oil-gas ratio to hedge against the high volatility of gas prices. Apache also wants...
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