Medco Energi Internasional

Abstract

In late 2004, Hilmi Panigoro, CEO of the publicly traded Indonesian oil company Medco Energi Internasional, is striving to regain majority control of the company his brother Arifin founded in 1980. The Asian financial crisis of 1999 led to a major restructuring that left the Panigoros with a 34.1% equity stake in Medco. Two other large shareholders are now looking to sell their combined stake of 50.9%, and have selected Temasek, the Singapore government's investment arm, as their preferred bidder. The Panigoros have a right of first refusal, but only a four-month window to raise the capital needed to head off Temasek's bid.

Hilmi and Arifin Panigoro are considering a two-stage plan: a Leveraged Buy-Out (LBO) to be followed by a secondary equity offering at a share price high enough to enable them to repay the loan and retain majority control of their company. As attractive as the plan seems, they worry about the high cost of the loan and the risk that the offering might fail. In January 2005, with no time left to consider alternative financing plans, the Panigoro brothers have to decide whether to go ahead with the plan or lose control of Medco to Temasek.

Students are required to evaluate the benefits and risks of the proposed financing plan from the perspective of both the controlling family and minority shareholders.

Keywords: Family firms, corporate control, LBO, emerging markets

JEL Classification: G32, G34, G3