Mesa Petroleum was attacking Gulf oil that pressurized the company to liquefy its assets. Gulf oil was faced with two alternatives. It had to either sell or privatize the firm. Suitors are expecting Gulf to sell out and are deciding their bids for the company.
Exploration and Development Data for Gulf and Socal
Selected Market Prices
Cost of Equity
Cost of Debt
WACC for Gulf
WACC for socal
Value of Oil Reserves
Value of Going Concern
Offer/ Bid Price
Maximum Price Socal can afford
Gulf Liquiditation Value
Value Using Multiplies
Enterprise Valye for Socal
1- What are reasonable multiples for comparing the relative values of SOCAL and Gulf?
2- What is the maximum price Socal can afford to pay for Gulf?
3- What changes in Gulfâ€™s operations are needed to justify the above price? What is the value of the changes you propose?
4- Compare the maximum price that Socal can pay for Gulf to Gulfâ€™s market value before it became acquisition candidate. If there is a difference, try to explain it.