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Published: Thursday, 6/3/2010

BP may be in struggle to fight off a takeover

BLOOMBERG

BP PLC's failure to stop an oil leak from spewing millions of gallons of crude into the Gulf of Mexico may leave the biggest oil and gas producer in the United States in a fight to stay independent.

BP shares have plunged 34 percent since the Deepwater Horizon drilling rig leased by the company exploded on April 20, wiping more than $58 billion from the company's value. That may make BP cheap enough to attract acquisition interest, investors said.

"The market value of BP has eroded substantially, so it could be a takeover target," said Dirk Hoozemans, who helps manage about $4.5 billion at Robeco Group in Rotterdam, which sold its BP holding last year. What matters now is how forceful BP's Chief Executive Officer Tony Hayward is in tackling the disaster and the aftermath, Mr. Hoozemans said.

With a permanent end to the leak depending on so-called relief wells that are some two months from completion, Mr. Hayward faces costs that may reach $37 billion, absorbing three years of cash flow, Credit Suisse analyst Kim Fustier said.

The company also faces a criminal and civil investigation in the United States into the disaster.

"There is a 10 percent to 20 percent chance of BP being taken over," said Gudmund Halle Isfeldt, an Oslo-based analyst at DnB NOR ASA. "The only real candidate, in size and with similar operations globally, would be Royal Dutch Shell."

BP shares fell for a third day in London yesterday, dropping as much as 3.5 percent. BP's proven energy reserves have tumbled in value to about $6.30 a barrel, lower than any of its U.S. and European peers and almost half the $12-a-barrel figure for Exxon Mobil Corp. and $11.40 a barrel valuation for Royal Dutch Shell PLC.

A BP-Shell tie-up has been discussed by the companies more than once. BP and Shell talked about merging in 2004, according to a 2010 memoir by John Browne, the former BP CEO. At the time, the companies talked about divesting BP's refining and marketing operations to satisfy possible anti-trust concerns. Those talks came after Shell takeover conversations in 1996, Mr. Browne said.

Spokesmen for BP and Royal Dutch Shell declined to comment.



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