Sunday, December 11, 2011

Conoco Inc. - Continental Oil and Transportation Company

Conoco Inc., formerly known as the Continental Oil and Transportation Company, was founded in 1875 as a western US supplier of oil, kerosene, coal, candles and grease. In 1981, driven by a need to diversify its business, Seagram Company Ltd. showed interest in acquiring the company. However, in a surprise move, chemical company DuPont entered the picture and outbid Seagram to acquire a large chunk of Conoco. Though Seagram managed to acquire 32% of stakes, Edgar Bronfman Jr., the then CEO of Seagram, sold back all shares owned by Seagram in early 1995. DuPont benefited immensely from this acquisition, becoming one among the top ten producers of petroleum and natural gas in the market. In 1998, DuPont decided to go public with Conoco resulting in what was the largest IPO in U.S. history.

In early 1998, DuPont announced its exit from the oil and gas company in an attempt to allow both firms to make maximal use of market opportunities. DuPont announced what was to be one of the high profile US IPOs in May 1998 and offered 20% stake to the public initially. The remaining stocks were sold within a span of twelve months by the end of 1999. The initial plan was to sell about 150 million shares with an aim of raising $3 billion to $3.6 billion in capital. However, the plan was later changed and about 192 million shares being sold to the public. The shares were priced in the range of $20 to $24. However, by the end of the IPO, the share price was at the top of the range, priced at $23. Due to this, an additional private equity of about $1 billion was raised along with the initial estimate of $3.6 million with the final figures being $4.4 billion. The turbulence in the market meant that it was not the best time to offer an IPO. However, despite the skepticism in the market, the strategy of offering 3-4% dividend for the stocks paid off adding stability to the IPO.

From the shareholder perspective, it was a win-win situation. While they had an opportunity to acquire shares of either DuPont or Conoco or both, they were also exempt from taxes. For DuPont, the IPO allowed a gradual shift from the petrochemical industry to the life-sciences. Conoco, however, profited the most by finally realizing its aim to become an independent organization.

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