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Will BP succumb to a takeover bid?

BP has been saddled with terrific costs after the explosion that sank the Deepwater Horizon and left the well leaking crude oil into the Gulf of Mexico, and now the Obama administration is talking about criminal charges.

As a result of this shock to the system, the company’s share price has fallen a massive 34%. Their market value now stands at US$ 115 billion. Ostensibly this makes BP a very affordable target for a takeover bid by one of its rivals; Shell, Total, Petrochina and ExxonMobil. It would give these companies the chance to acquire huge global reserves, and also give them access to the company’s wealth of experience and technology.

However, there are also important reasons why these companies would not be willing to attempt a takeover. The current oil spill has already cost BP over US$ 1 billion, and some analysts are predicting that the total cost of the spill could be as high as US$ 20 billion. Any company that took over BP would become responsible for these costs as well.

BP’s size also poses one of the biggest obstacles to a potential takeover. For starters, Total is simply too small to be able to finance such a large deal. A merger of this size would also not be palatable to Europe or the US government, and would almost certainly breach competition laws. Particularly, if ExxonMobil, (the second largest oil and gas major after BP) attempted to take BP over. The only way such a deal would be palatable would be if they sold off assets, but forced sales of assets would be unlikely to yield a good price and would reduce the value of such a takeover.

A takeover from Petrochina would also likely be met with fierce political resistance in the UK and North America. In the past, when CNOOC attempted to take over Unocal, they were met with protest in North America; Chinese buyers have instead started tactfully buying assets instead of companies.

One more major sticking point is TNK-BP, this is a joint venture BP has with Russian investors and accounts for 25% of BP’s reserves and 10% of its profits. BP’s Russian partners are unlikely to countenance any deal which would see BP lose its independence and this part of the company would most likely have to be sold off, further reducing the value of any takeover bid.

Most importantly though, BP itself is attempting to deal with its problems constructively and there has been no intimation that it is looking for a takeover bid. Tony Hayward himself, BP’s Chief Executive, has stated that the company is large enough and strong enough to deal with the problems caused by the oil spill in the Gulf of Mexico.

Published on 03/06/2010


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