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Can Petrobras really be buying into Galp?

|Includes:Petrobras - Petroleo Brasileiro S.A. (PBR)

The Brazilian media are reporting that Petrobras is gearing up to announce that it is spending at least $5.3 billion for a 33% stake in Portugal’s Galp Energy. This would be crazy.

Petrobras (PBR) is reportedly talking to Italy’s Eni (E) about buying the strategic stake in Galp, which thinly trades in ADR form as GLPEF .

At current market price, the deal could cost PBR at least $5.3 billion and probably quite a bit more to make it worth Eni’s while.

Sadly, PBR is officially offering a “no comment” instead of debunking the buzz as an unsubstantiated rumor. This is not ideal — if the company has no interest in an expensive acquisition like this, they could simply say so.

If this is true, the market will punish PBR fast and decisively. The company has more reserves than it knows what to do with, and since it has already gone to such lengths to raise capital, I do not know where they will get the money.

Watch this one to see whether any facts emerge. In theory, this could be a downstream play as far as PBR management is concerned — a way to get a toehold into Europe’s retail fuel markets. But in practice, it simply does not make sense.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Stocks: PBR