Advanced Corporate Risk Management: MW Petroleum (B) - Edubirdie

University:
Massachusetts Institute of Technology
Course:
15.501/516 | Accounting
Academic year:

2023
Views:

303

Pages:

1
Author:

Bobby Tate

Case Study Questions: MW Petroleum (B) What is the central motivation for the transaction? Why seek international buyers specifically? Why exclude Apache originally? Why would MW be of interest to an international company if it isn’t of interest to Amoco? Why will the assets be worth more in Apache's hands than in Amoco's hands? Explain the spin-off alternative. Where does current management fit in? How does it deal with the problem of disagreements over the right valuation? Can shareholders lose? Why bother with Apache? Using the planned oil production schedule shown in Exhibit 7, calculate the value of the revenue to be earned under Amoco’s forecasts and under Apache’s forecasts as detailed in Exhibit 3. Both Amoco and Apache use a 14% discount rate. Suppose MW Petroleum and Apache close a deal. Suppose Apache then sells the planned production forward. What is the value of the forward sale? What is the relationship between the different forecasts and the different views on value? How does this affect the transaction? Will the assets be worth more in Apache’s hands than in Amoco’s hands? What role do the price forecasts play in your answer? What is the role of the price sharing agreement, and how does this work? Illustrate it.

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