Repsol Overpriced on Takeover Speculation

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HEARD ON THE STREET: Why Some Think Repsol Stock May Be Too Rich [Wall Street Journal]

Summary: Despite weak profitability and dwindling oil and gas reserves, the stock of Spanish-Argentine oil company Repsol YPF has risen 16% in eight weeks. The reason: many investors believe it is about to be bought. Repsol's shares now trade at about 10.3x estimated 2007 earnings, making its stock more expensive than its peer group at a 10.1 average ratio. The likelihood of a takeover has receded, though, with the recent purchase by Spanish builder Sacyr Vallehermoso SA of a 6% stake in the company. Sacyr has stated that it plans to acquire at least 20%. Savings bank La Caixa already holds 14% of the company, so the core shareholder stake could ultimately reach a proportion that could prevent a hostile takeover. As the probability of a takeover diminishes, so do the stock's prospects: Analysts at Citigroup, Merrill Lynch, Société Général and Cheuvreux have become bearish on the stock. BP PLC, Royal Dutch Shell PLC and ENI SpA have all recently denied that they are interested in acquiring the company. Repsol ADRs closed at $33.87, up $0.31, on Friday.
Related links: Repsol YPF denies comment on 'market rumour' it's seeking core shareholders [Forbes] • Sacyr says it will raise its stake in Repsol-YPF to 20 pct [Forbes] • La Caixa reiterates Repsol YPF stake 'strategic', no plans to sell [Forbes]
Potentially impacted stocks and ETFs: Repsol YPF SA (REP) • Europe 2001 HOLDRs (EKH)

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