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HBS case study on societe distribuidora de petroleo (SAT)

Specifications (adapted from Harington, Dryden Press, 1993):
1. Case Background and Statement of the Problem
In only a paragraph or so, give the context of the case, the timing of the case and explain concisely the central problem(s).
2. Analysis
This is the ‘heart’ of the case, and it should constitute half or more of your total write-up. It should contain a detailed examination of all relevant data, a description of your analytical approach(es) (i.e., what tools did you use?), and a discussion of the strengths and weaknesses of the approach(es). The analysis should provide a solution to the main problem(s) identified earlier.
3. Alternative Courses of Action
Elaborate on the courses of action available to the decision maker. Be creative, but be realistic. Consider complications which could possibly be introduced by intangible, ‘human factors.’
4. Recommendation(s)
Take a definite stand: from among the alternatives you proposed, recommend a specific course of action for the decision maker, and make sure that your position is well-defended.
Professors Lynda M. Applegate of Harvard Business School and Andr
ea M. A. F. Minardi of Ibmec Sã
o Paolo prepared this case. HBS
cases are
developed solely as the basis for class discussion. Cases are not in
tended to serve as endorsements, sources of primary data, o
r illustrations of
effective or ineffective management.
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LYNDA M. APPLEGATE
ANDREA M. A. F. MINARDI
Satélite Distribuidora de Petróleo
In February 2002, Marcelo Alecrim,
the owner of Satélite Distribuidora de Petróleo (SAT), had just
started negotiating with Julio Lastres, a senior mana
ging director for the Amer
icas at Darby Overseas
Investments, Ltd. (Darby), to sell
a minority interest of SAT. Alec
rim saw the sale as a way to raise
money in order to grow SAT, improve its balanc
e sheet, build its reputation, and negotiate better
interest rates both with banks and with Petrobra
s, Brazil’s state-owned oil company. But the new
partnership would not come without a cost. Privat
e equity funds such as
Darby typically imposed
strictures on the entrepreneur’s actions and dema
nded key executive positions and board seats.
Alecrim needed to decide whether to continue the negotiation and pursue SAT’s growth
opportunities, or to allow a break in the pace
of growth in order to maintain his company’s
autonomy. What other alternatives did he have?
Brazil’s Gas Distributio
n System in 2001
With an area of 8.5 million square kilometers, Brazil in 2001 was South America’s largest country.
Industrialization since the mid 1
950s had made Brazil reliant on
highways and trucking for the
economy’s transportation needs. Fuel
, especially diesel fuel, became a critical factor affecting the total
cost of production, distribution, and the final price of
goods sold to consumers. In Brazil, only trucks
were allowed to use diesel; personal automobiles had to use gasoline or alcohol.
The government tightly controlled fuel prices thro
ughout the supply chain. To keep the price of
diesel fuel down, the government paid Petrobras
a market price for its diesel and subsidized the
lower retail price. This diesel subsidy reached $2 billion a year in 2000 according to conservative
estimates, and was partially paid for by gasoline consumers, said SAT managers, who added that
legal prohibition of self-service gas pumps meant that gas stations in Brazil employed more than
200,000 people in 2000.
From 1954 until 1996, the only piece of the su
pply chain that was not totally regulated was the
sales to final consumers. Any truck or bus driver could fuel a vehicle with diesel at a gas station, but
owners of private cars could not use diesel fuel. Pe
trobras controlled the pipes and tanks, as well as
95% of Brazil’s refining capacity, and allowed a limited number of firms to distribute fuel to gas
stations. These included international firms Exxon,
Shell, and Texaco, plus local companies such as
808-062
Satélite Distribuidora de Petróleo