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MW Petroleum Corporation (A) finance case
Finance & Accounting
Pages 4 (1004 words)
Name: Course: Instructor: Date: MW Petroleum Corporation (A) Part 1(a) Amoco’s strategy is to rationalize its operations by shedding assets that are not contributing significantly to the company’s gross margin. This is reasonable as both the direct costs and overhead cots are high…
This should allow for increased economies of scale in the form of reduced direct operating costs and even more so overhead costs for Apache. It is cheaper for Apache to buy an existing business as it has been doing rather than carry out exploratory drilling. This acquisition will also allow the company to diversify geographically its portfolio of assets which is important when the riskiness of the operations is considered. This diversification will somewhat help to stabilize Apache’s earnings even though both gas and oil prices are highly volatile. The acquisition of Amoco will also enhance Apache’s standing among US independents and lead to even further acquisition opportunities. The company is considering further growth opportunities in the future and this represents a stepping stone that will allow Apache some amount of bargaining power and would therefore put the company in a better position to compete with other companies. It is reasonable to expect that the MV properties are more valuable to Apache than to Amoco because Apache will benefit from synergies and rationalization of expenses. Table 2 below shows the present value of the aggregate overheads that Apache could reduce substantially if the acquisition takes place. ...
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