National Post (National Edition)
Exxon-BP acquisition talk resurfaces
LONDON • BP PLC’s shares surged the most this year after a London newspaper reported on rumours that Exxon Mobil Corp. sounded out major shareholders over a potential takeover.
While a bid for BP can’t be ruled out, reports about Exxon’s interest have been around for years and analysts from Macquarie Capital Ltd. to Canaccord Genuity said a deal was unlikely.
“The report about Exxon and BP seems to be just a rumour because there doesn’t appear to be an obvious strategic fit,” said Anish Kapadia at Tudor, Pickering, Holt & Co International LLP. “It would create a company potentially too big and complex to be manageable.”
Exxon and BP spokesmen declined to comment.
Oil’s current downturn has resulted in just one big deal — Royal Dutch Shell PLC’s US$54-billion acquisition of BG Group PLC last year. Others have preferred to do smaller acquisitions as they preserve cash and protect their balance sheets. While oil prices have increased from the 12-year lows of last year, companies are still unsure if the recovery is sustainable.
Still, Irving, Tex.-based Exxon has one of the strongest balance sheets in the industry and hasn’t done a deal on such a large scale since the wave of oil-major consolidation in the late 1990s. In contrast, BP has shrunk significantly since the 2010 oil spill in the U.S. Gulf of Mexico forced it to set aside more than US$54 billion for compensation and penalties.
As recently as 2010, BP had the same market cap as Shell and produced more oil and gas. Today, BP’s value of US$112 billion is about half that of Shell. It’s even further behind Exxon at US$337 billion.
As well as the daunting scale of a deal, there’s potentially a poison pill. Any buyer might be forced to accelerate the payment of as much as two-thirds of the more than US$20 billion in penalties levied on BP for the Gulf of Mexico oil spill, according to company filings. “That will significantly add to the costs,” Kapadia said. “It may not be what someone would want to take on.”
That BP’s independence is even up for discussion shows the relative decline of a company that pioneered exports from the Middle East, helped start Alaska’s oil industry and led the exploration of the North Sea.
Since taking over in the months following the accident, chief executive Bob Dudley sold about a third of the company’s assets and production has fallen from close to four million barrels a day in 2010 to a little more than three million. The firm is trying to grow again, with a series of deals in the Middle East and Africa last year.
With almost no debt and billions of dollars of shares repurchased over the past decade, Exxon has the financial power for almost any conceivable transaction. However, marrying the Texas company’s famously buttoned-down engineers with BP’s internal culture could be difficult.
“I don’t see what the point would be of Exxon acquiring the company,” said Iain Reid at Macquarie in London. “There’s nothing unique about BP that Exxon can’t get something similar by just buying single assets. If I had money to invest I wouldn’t put it in BP in the hope Exxon would buy the company.”