STATOIL ASA—GLOBAL ENERGY COMPANY Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Statoil ASA—Global Energy Company Case Solution

Introduction

Stat oil is a global oil and gas integrated company working in many regions across the world. The company is headquartered in Norway and having a capacity to produce around 1.716 million barrels of crude oil per day. The company has publicly offered shares which are floating in the market. Moreover, the share prices peaked around $33.27 in May 2006 while they dropped down to the lowest level in October 2006.

The company was founded in 1972 as a state owned company since the company was owned by the government of Norway at that time. Furthermore, the company was privatized in 2001 while the company first time offered its shares to the local public. However, 70% of the shares are still held with the Norwegian government.

In addition, the company successfully received $3 billion from its IPO and invested that capital to expand its operations across the world. However, the company has started its operations in the Norway Continental Shelf (NCS) which is a leading oil and gas production segment. Finally, the company is also targeting to expand its operation in other parts of Europe while it also planning to move towards the American and Canadian market.

Problem Statement

The company is working in a strong financial position while the company has enough assets and growth prospects to support its future plans. The strongest segment is the firm’s profitability and capital structure as, the firm is generating profit while even having almost 63% of debt in its total capital structure.

On the other hand, the company is facing several issues since, the company is facing intense competition and the diversification plans of the company requires funding. Moreover, the credit rating of the company is not so good as, the company has been rated A3 which shows that the company does nothave a good credit history.

Based on the credit history and rating the company will have to give more returns as compared to the market if the company issues a debt instrument because of its low credit rating and financial strength.

The company’s executives are considering acquisition deal since, the profitability of the company may decline in future because of the diseconomies of scales in the business structure. The major target of acquisition is to achieve economies of scales while ensuring the long term and strategic growth prospects.

Finally, the executive of the company has collected the data of a similar company namely BP plc which is also a giant in the same industry having almost the same size, and capital structure as Statoil.

In this study, the analyst will try to evaluate the feasibility of the acquisition and decide whether the acquisition could be able to add some value to the company and if so then how much the amount will be and what will be the offer price.

Assumptions Used in the Analysis

The analyst used several assumptions (appendix 1). It can be seen that the analyst has the CAPM formula to find the cost of equity,however the findings suggested that the cost of equity is around 11% while the cost of debt is around the same rate. Nonetheless,there is a surprising result which is the WACC since, the WACC is just 6.1%. The reason behind this low WACC is the excess rate of tax since, the Tax rate is around 66% which is very high but this high rate is decreasing the Cost of Capital...............

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