BP: Not a Takeover Target

Analysis says company is “one big toxic mess”

Published in CSP Daily News

HOUSTON -- “It's one of the largest companies in the world. Could it really be a takeover target?”

That’s the question posed by Fortune magazine recently following suggestions that the recent fallout from BP’s 2010 Gulf of Mexico oil spill could mean the company is ripe for acquisition or takeover.

Here’s a portion on Fortune’s analysis:

Some in the industry see BP as fresh deal meat following the company's long-awaited settlement with U.S. authorities in connection with the Deepwater Horizon oil spill. But while such a mega-merger may make Wall Street bankers salivate, even after selling off billions of dollars in assets, BP simply remains too big and too risky to buy. Specialization is the name of the game these days in the oil patch. BP would need to break up into more manageable pieces before any oil major would consider opening its wallet. …

Down in Houston, energy bankers and oil executives uniformly shuddered at the notion that BP is now, or could be soon, the subject of a takeover. Insiders at ExxonMobil, one of the companies that cited as a possible merger partner, told Fortune that there has been zero talk of doing any kind of deal with BP recently. …

To be sure, BP does have a lot of valuable assets that the majors would love to get their hands on. ExxonMobil still covets BP's Gulf of Mexico assets, for example, even after the Deepwater Horizon disaster turned the Gulf into one big oil slick for a few months. The issue comes when you start talking about absorbing all of BP, which still has operations up and down the oil value chain from the bottom tip of Africa to the top of the Artic. Combining all of those operations just seems like a headache that isn't worth the trouble, especially when companies can still replace their reserves profitably.

 Oil companies, especially ExxonMobil, are extremely conservative and aren't prone to jump into a deal unless they know they can make serious money. …

While it is true that BP is trading at a major discount to its peers, with a price-to-earnings multiple of 7.1x versus 11.1x for ExxonMobil, it has always been a laggard for one reason or another.

 And while BP has successfully negotiated settlements with the government and private individuals in connection with the Gulf oil spill, it isn't out of the woods just yet. BP still needs to settle "grossly negligent" charges brought under the Clean Water Act and the Oil Pollution Act. That could cost the company as little as $5 billion to as much as $30 billion or more. A trial is set for February, so the hope is that BP settles before then so it can truly move on.

So even if it makes economic sense to merge, don't expect a big oil deal to spoil your holidays. With a $130-billion market cap, and billions of dollars in unknown liabilities, BP remains one big toxic mess, which no oil company would want to acquire.

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