Aramco’s Privatization and IPO Dilemma: Timing and Valuation
(5 pages of text)
Case (Pub Mat)
In November 2019, Saudi Arabia’s government officials and advisers had to decide whether or not to proceed with a plan to make the government-owned Saudi Arabian Oil Company (Aramco) a private company and list it on a stock exchange. At the time, Aramco was considered to be the most profitable company in the world. Therefore, its initial public offering would potentially be the largest in history. The company’s market capitalization would dwarf those of global giants Apple Inc. and Google LLC. Saudi Aramco managed the world’s largest oil reserves and had the world’s second-lowest cost of oil extraction. However, there were concerns about the targeted valuation of US$2 trillion. There were also various other questions to be answered: Should the government-owned Aramco become a private company? Was the timing right to list the company on a stock exchange? What fraction of shares should be offered to investors? How should the largest initial public offering in history be priced?
This case is designed for undergraduate- and graduate-level courses on corporate finance, specifically on the topic of raising capital through an initial public offering. The case also discusses the decision to make a major state-owned company a public corporation. After working through the case and assignment questions, students will be able to do the following:
- Value a government-owned company using several valuation models.
- Assess complexities related to an initial public offering (IPO).
- Assess complexities related to taking a giant government-owned company public.
Mining, Quarrying, and Oil and Gas Extraction
Saudi Arabia, Large, 2019
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