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. Last Updated: 07/27/2016

Repsol in $13Bln Argentine Oil Bid

NEW YORK -- In a deal that would create the world's eighth-largest oil company, Repsol SA, Spain's largest oil company, said it was offering $13.4 billion in cash to buy the 85 percent of Yacimientos Petroliferos Fiscales, the Argentine oil company, that it does not already own.

Repsol, which paid $2 billion in January for 15 percent of YPF, said Thursday that it would pay $44.78 a share in cash for the rest of YPF, a price that Repsol said was a 25.4 percent premium over Thursday's closing price for YPF shares on the Buenos Aires stock exchange.

Whether that price will be high enough for the bid to succeed was questioned by several oil analysts Thursday afternoon as rumors about the deal, which had been circulating for weeks, drew attention on Wall Street a few hours ahead of the announcement by Repsol. The rising price of oil f $18.53 a barrel Thursday in New York, up from $11.78 just 10 weeks ago f should make YPF shares rise in value, these analysts said.

The combined company would have half the gasoline-station market in Argentina and would be a major force in Peru, Ecuador and Brazil, Alfonso Cortina, Repsol's chief executive, said Thursday night in a telephone call from his office in Madrid.

"We are going to create an integrated, world-class oil company," Cortina said, with enough cash flow that the company will be able to pay back the added debt it will take on to make the purchase by the end of 2000.

Cortina said, "We can commit to our shareholders to increase our earnings per share roughly 20 percent from 1998 to 2002" and that return on assets should rise from 11 percent now to 15 percent by 2002.

The new company will be highly leveraged at first, with 30 percent equity and 70 percent debt, most of it an unsecured bridge loan at floating interest rates that makes the company vulnerable to a sudden upturn in interest rates or a sharp drop in the price of oil.

By the end of 2000, however, the company's debt should be between 48 percent and 50 percent of the combined company's capital structure, Cortina said. To pare down debt, he said, about $2.5 billion worth of YPF assets will be sold and a new issue of stock, intended to raise $4 billion to $6 billion, is being arranged with Goldman, Sachs, Merrill Lynch and Salomon Smith Barney as the lead underwriters.

YPF was founded in 1922 as the first state-owned oil firm outside the Soviet Union. For seven decades, it was known as the only oil company in the world that lost money, as Argentine dictators drained it of both products and cash to subsidize other state-owned enterprises and to prop up unrelated YPF businesses, from hospitals to movie theaters.

YPF was privatized between 1990 and 1993. Its payroll of 50,000 workers was cut to 10,000, and unprofitable operations were sold. YPF is already the largest private oil company in Latin America and the largest private company of any kind in Argentina.

Cortina acknowledged that there was strong opposition in the management of YPF to Repsol taking charge, but he said he was confident that he could win over the key personnel.