Value creation through M&A: A case study of StatoilHydro

Grethe Simonsen

Student thesis: Master thesis


This report is based upon the hypothesis that, in general, the value of Company AB (the merged entity) exceeds the value ofCompany A + the value ofCompany B (the sum ofthe value ofthe separate entities), referred to as the "2+2=5"-effect. This indicates that there will be an economic gain from the merger itself and thus an economic justification for the merger (Allen, Brealey & Myers, 2006). This hypothesis is tried on the merger ofStatoil and Hydro Petroleum by a comparison analysis ofthe value ofthe two entities on a standalone basis and the value ofthe merged entity including the estimated effect of synergies. Based on the above mentioned theme, the main focus ofthis report is to find a solution to the problem statement' What was the effect ofthe merger between Statoil and Hydro Petroleum in terms ofcompany value? Was additional value added to the company? ' At the time ofthe merger Statoil was the leading producer of crude oil and gas on the Norwegian Continental Shelf(NCS), and the largest supplier ofnatural gas from the NCS. Statoil held a market share of 40% in the retail gasoline business in Scandinavia, and was one ofthe largest net sellers ofcrude oil worldwide. Hydro's contribution to the merged entity StatoilHydro consists ofHydro's oil and gas operations, or Hydro Petroleum. The company was at the time ofthe merger an international oil- and energy-enterprise, and one of the major participants in the Nordic and European energy markets. Measured on production, Hydro Petroleum was the second largest operator on the NCS, and would, as a separate entity, be one ofthe leading international companies within the industry. The companies are first valued using the DCF valuation modeIon a stand-alone basis. The merged entity StatoilHydro is then valued using the same model, and a comparison analysis of the calculated enterplise values is perfonned to identify the monetary effects of the merger. According to the merged entity the synergy effects from the merger include cost reductions, increase in revenue and new emerging growth opportunities due to efficiency improvements, the sharing ofknowledge and an improved market position. These synergy effects are stipulated by the company to amount to approximately 6 billion NOK each year, and it is estimated that the synergy potential is fully reached by 2012 at the latest. These synergy effects are incorporated in the valuation ofthe merged entity. In addition restructuring costs of 10,7 billion NOK incurred in the merged entity's first year of operations. The outcome ofthe analysis is that the merger has indeed added value to the company, and thus created additiona! value to the shareholders. It is likely that this additional value would not have been possibIe to obtain if the companies were to continue their operations as separate entities as it is mainlya result of synergy effects. This means that in this particular case the hypothesis regarding the '2+2=5' effect holds.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2009
Number of pages92