Event Study Analysis

Reliance-BP Deal

Project Finance Abhineet Gaurav | Dimple Bhatia | Harsh Bansal | Yash Jain

Steps in Event Study Analysis

Event Definition

Interpretation

Normal & Abnormal Return Measurement

Testing Procedure

Selection Criteria

Estimation Procedure

Empirical Results

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• An event study attempts to measure the valuation effects of a corporate event, such as a merger or earnings announcement, by examining the response of the stock price around the announcement of the event.

• One underlying assumption is that the market processes information about the event in an efficient and unbiased manner.

What is an Event Study?

1. BP paid $7.2 bn to buy into India's fast growing oil and natural gas business. Additional $1.8bn contingent on finding more oil

2. BP took a 30 percent stake in 23 oil and natural gas fields operated by Reliance Industries, India's largest private company

3. No valuation premium. The advantage was mainly in the form of expertise that BP brought to the table.

4. The two companies also created a 50-50 joint venture to buy, transport and market natural gas, which is increasingly in demand in India as the country's economy grows at nearly 9 percent a year

The Deal- $7.2bn oil & gas investment by BP

Event Date 21st Feb 2011• Event window: 7 trading days (16th Feb to 24th Feb 2011)• Clean period -41 to -240 days (March 11, 2010 to Dec 10,

2010)

Data Collected for• BSE 500 market index• BSE OIL & Gas Index• Reliance Industries Limited

The Deal- $7.2bn oil & gas investment by BP

Methodology

Event Definition

Interpretation

Normal & Abnormal Return Measurement

Testing Procedure

Selection Criteria

Estimation Procedure

Empirical Results

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Microsoft Office Excel 97-2003 Worksheet

• Cumulative Abnormal Return 3.889%– Over the 7-day event window

• Z score = 2.54– Return > 0 at 99% confidence level– Positive reaction to the deal by the market

• Increase in shareholder value US$ 2.37 bn

Results

• Impact of the deal may have dissipated over a larger period– Regulatory issues and eventual resolution– Prior information through unofficial sources / insider information

• Likelihood of other influences during clean period

• Other influences during the event window

• Identifying the optimal event window– Trading holidays during the event window

• Identifying an appropriate peerset

Limitations

THANK YOU!