Research On Real Options About The Value Of Corporation

This paper is mainly about the research about the “going out” strategy of China’s oil enterprises, which is about transnational mergers and acquisitions. It points out the reasons of this kind of action and uses the real options analysis to assess the value of foreign acquired enterprises. This paper also analyzes the reasons of transnational acquisitions from oil enterprises in China. There is a specific example, the SINOPEC’s acquisition to Addax in Switzerland in 2009.Owing to its wide range of uses and characteristics, oil products have already become one of the most vital strategic resources. In order to acquire more oil resource and reduce to dependence on imported oil, China’s oil enterprises start to make transnational acquisitions. Therefore, the way to assess the value of acquired corporations is also considered as one important step in the whole procedure. Oil cannot be applied in our modern life before it is prospected, mined, extracted and sold. Oil resource also has its uncertainty: proved reserves, probable reserves and possible reserves will impact the final production. So oil enterprises are full of uncertainty. In this condition, the conventional discounted cash flow method, which just takes few factors in consideration, cannot show the future benefits of the corporations in a whole picture. The real options method makes up the shortcomings of the former one, and it can be a tool to make decisions.The real options are regarded as a right to investors, not an obligation. So to decision makers, the value which is assessed by real options method contains subjective right of choices. Every decision maker has the right to make options according to the reality. They can put more money in the project, wait or choose to withdraw. Compared with financial options, real options method needs to meet plenty of conditions when it is applied, which also restricts its range of application. Another very important point is about the determination of the parameters, which may require lots of research work and calculation.As to the case of SINOPEC’s acquisition to Addax, from the real options analysis, this deal is worthy. However, other media thinks that SINOPEC paid too much. During the analysis, we must understand the special characteristics of oil. Some factors, such as political factors and oil price trend around the globe, cannot be ignored.