Repsol and YPF (C): Recovering Value

By Katherine Casey, Ken Shotts, Sheila Melvin

2017 | Case No. P90 (C) | Length 6 pgs.

Political Economy

Back in 1999, the Spanish oil company Repsol purchased 98 percent of the Argentine oil company YPF’s shares for more than $15 billion and changed its name to Repsol-YPF. At the time, the New York Times said the deal “appears to be a perfect marriage” and asked, “Repsol-YPF: As Good as It Gets?” However, on April 16, 2012, that “perfect marriage” was effectively annulled when Argentine president Cristina Fernández de Kirchner announced that her government was expropriating YPF. “The model chosen for the future of YPF is not nationalization,” said Fernández, “but recovery of sovereignty and control of hydrocarbons.”

This case explores, in three parts, the background to the expropriation of YPF; the responses considered by Repsol; and Repsol’s ultimate decision to fight the expropriation, which resulted in its receiving $5 billion in guaranteed bonds from the Argentine government.

Also see: P90 (A): Respol and YPF (A): A Perfect Marriage? and P90 (B): Repsol and YPF (B): Considering Options.

Learning Objective

This case aims to build student understanding of political risk. It explores the motivation, incentives and constraints that Presidents face in environments characterized by weak institutional checks and balances. It identifies the factors that make expropriation of assets more or less likely, and in turn, the strategy levers available to firms to mitigate these sources of risk. It clarifies the strengths and weaknesses of several distinct venue options for dispute resolution (arbitration, diplomacy, court action) and evaluates them against the option of write off. It provides details on the implementation of one successful effort to recover value.

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