Fi561 – Mergers & Acquisitions – Week 5

2700 words - 11 pages

Executive Summary:

On January, 1998, the Senior Executives of DuPont are considering possible divesture of Conoco. Based on financial analysis and economics data analysis, I propose that divest 40% shares and keep the mainly control of Conoco.

We believe that divesting Conoco from DuPont will:

- permit DuPont to expand its life sciences business, while at the same time allowing Conoco to pursue its investment program in new and capital-intensive oil and gas projects;

- facilitate future partnerships, combinations and other arrangements between Conoco and other entities in the oil and gas business;

- allow each company to offer incentives to its employees that are more closely ...view middle of the document...

The company had a long tradition of technological innovations in business and it continues to serve worldwide markets including food and nutrition; health care; agriculture; fashion and apparel; home and construction; and electronics. Among some of its inventions are nylon stockings invented in 1939, Teflon for pans, Kevlar for bullet-proof vests, stain master for carpets, the synthetic fabric Lycra, and Dacron for clothing.

Conoco began in 1875 as the Continental Oil and Transportation Co., one of the first petroleum marketers in the West. The company has made it through plenty of tough and challenging times from the stock market crashing just a month after Conoco took its stock public, to overseas expansion, to the oil crisis of the 19070’s. Then in 1981 a simple proposal by Canada's Dome Petroleum about acquiring a Conoco subsidiary, Hudson's Bay Oil and Gas left the company wide open. In order to assure an adequate supply of petroleum products to use as chemical feed stocks, DuPont bought Conoco on Sept. 30, 1981. Conoco became a wholly owned DuPont subsidiary in the largest merger ever at that time, costing DuPont $7.8 billion. As a subsidiary of DuPont, Conoco became a major, integrated, global energy company operating in 40 countries worldwide. The company was involved in both downstream and upstream activities like exploring for, developing, refining, marketing, transporting, and selling crude oil and natural gas. (3)

As one of subsidiaries of DuPont, Conoco have been very successful and it will keep going better. But DuPont need to change the strategy and focus more on chemicals industry. So we made that decision, which is divest a part of Conoco but still keep the control. I think it is the best way for DuPont. And I have four reasons to support my opinion.
Annual average domestic crude oil price during 1994-1997

Annual Average Domestic Crude Oil Prices
1946-Present
U.S. Average
(in $/bbl.)
Year Nominal Inflation Adjusted
1994 $15.66 $24.27
1995 $16.75 $25.26
1996 $20.46 $29.96
1997 $18.64 $26.69

(http://inflationdata.com/Inflation/Inflation_Rate/Historical_Oil_Prices_Table.asp)

First of all, please take a look at the chart above. It is clear to see that there was an increase in crude oil price during the last 4 years. According to the research, it is estimated that the world reserves of petroleum may total 2 trillion barrels. However, the known and proven, in the ground, reserves total some 1034 thousand million barrels. That’s just over 1 billion barrels. While this seems like a huge number, all fossil fuels are non-renewable resources so conservation and wise use of the petroleum produced are imperative. (12) So, in my opinion, the price of crude oil will keep going up in future.

OK, let’s assume if there is no changes in other cost and the price of crude oil keep going stable or up, we could make at least ($18.64-15.66)/$15=19.02% or more revenue because of the increasing crude...

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