By Sam Fleming
Last updated at 11:25 PM on 10th June 2010
The political firestorm surrounding BP led to a roller-coaster ride for the company’s shares on stock exchanges yesterday.
Rumours the firm could consider bankruptcy protection vied with speculation it had become a bid target.
On Wall Street last night BP’s New York-listed shares staged a 9.5 per cent rebound on talk a rival could pounce. That followed a 16 per cent rout the evening before.
Some investors now see the firm as a tempting target after it lost £55billion of value since the April 20 explosion on the Deepwater Horizon rig in the Gulf of Mexico, which killed 11 workers.
Shares have now shed 44 per cent of their value since the disaster triggered the worst oil spill in American history. Yesterday the London-listed stock lost another 6.7 per cent to trade at 365.5p a share, wiping another £ 5billion off the value of the group.
BP is determined to resist any overtures from opportunistic bidders and many London-based shareholders argue it would be madness to sell out when the stock is at such depressed levels.
They insist they are optimistic about BP’s capacity to rebound from the current crisis, arguing that its shares are now wildly undervalued.
One industry source said: ‘BP will defend its independence.
‘Any attempt to take it out at these (share price) levels or anything resembling them would be the height of opportunism.’
However, some industry players believe Washington’s political assault could ultimately destroy the firm.
As a result, there is talk the company could seek Chapter 11 bankruptcy protection in the U.S., offering BP some breathing space to sort out its affairs.
A far more likely outcome is the suspension of the dividend, allowing the firm to conserve more cash to pay out spill-related claims.
U.S. Department of Justice officials have said they are planning ‘to take action’ to make sure BP has enough cash to cover any compensation claims arising from the spill. This is also seen as a threat to the dividend, which has not been cut since 1992 and provides around £1 in every £6 of share payouts from UK blue-chip firms.
The company has so far refused to comment on the future of dividends, with the board due to make the decision at the end of July.
One suggestion last night was that BP could impose a voluntary moritorium on payments as a way of holding out an olive branch to its U.S. critics.
BP has said the cost of the clean-up and containment efforts had now hit £979million.
Alternatively, BP could end up falling prey to a bid from deep-pocketed rivals.
The firm’s shares are now worth £68billion, compared with £123billion before the leak. This makes it far more digestible than it used to be.
Only a few global companies are seen as packing the firepower needed to digest a company of BP’s size and complexity, however.
Three more likely candidates are seen as ExxonMobil of the U.S., Anglo-Dutch giant Royal Dutch Shell, and Beijing-controlled PetroChina.
Yet none of these bids would be easy to pull off.
Exxon has vast financial muscle and its American provenance will appeal to politicians who have been banging the anti-British drum.
But Exxon’s overlaps with BP’s U.S. business could trigger competition concerns.
Royal Dutch Shell is BP’s closest European rival, and the two firms contemplated a tie-up under former BP boss Lord Browne.
But Shell may decide it has enough on its plate without assuming vast Gulf liabilities.
This could leave outsiders such as state-owned PetroChina of China as potential bidders.
PetroChina recently overtook Exxon as the world’s most valuable company and it enjoys the backing of the Beijing state.
But the prospect of a British-owned firm with a huge American workforce being swallowed up by a Chinese-controlled one would be difficult to accept for jingoistic Washington politicians.
Angry: Protesters demonstrate against BP at a petrol station in Los Angeles. The company could end up seeking bankruptcy protection
This great British company faces death by a thousand cuts
By Alex Brummer
Beleagured BP faces potential destruction unless David Cameron can persuade President Obama to scale down his increasingly inflammatory rhetoric.
It is hoped the Prime Minister’s reluctance to publicly criticise the American ‘lynch mob’ – currently revelling in anti-British attacks – conceals private moves to stop one of Britain’s most important businesses going under.
Since the explosion on the Deepwater Horizon platform in the Gulf of Mexico on April 20, the stock market value of BP has plunged by £ 55billion.
This is the biggest loss of value at a top-ranked British enterprise since 84 per cent of the Royal Bank of Scotland was taken into state ownership in the autumn of 2008.
By driving BP towards the abyss the White House risks not just demolishing the Anglo-American relationship, but ruining the best chance of cleaning up the mess and providing sufficient compensation to the victims of the catastrophe.
Despite the pressures on BP and its virtually unseen board during this crisis, the company has a determination to keep going - despite numerous failed attempts to plug the leak.
On a business front, it is dismissing talk about placing BP America into Chapter 11 bankruptcy. This was the course taken by the oil group Texaco in 1987 (after a legal dispute over a failed takeover) and General Motors last year.
The difference this time is that those companies could not pay their wage bills and creditors. But BP – with its cash flow generation of more than £20billion – has the resources to limp on.
What is certain, however, is if the Cameron coalition fails to silence the verbal abuse and threats of steep financial penalties from President Obama and Congress this great company could be killed by a thousand cuts, which would be an enormous blow to Britain’s economy.
The nation’s pension and insurance funds – which receive £1 in every £6 of dividend income from their holdings in BP shares – would take a huge hit.
Just as seriously the Exchequer would lose the £6billion of corporation tax incurred by BP last year, the single largest UK taxpayer.
So what kind of deal could be cooked up by Cameron, BP and the Obama presidency to end the increasingly hostile stand-off?
BP’s most tangible bargaining chip is the dividend it pays to shareholders. The ugly mood in America suggests it would be dangerous to pay out under current circumstances when those damaged by the spill – from Louisiana to Florida – are screaming for blood.
Tony Hayward, the beleaguered BP chief executive, and his team have several options open to them.The dividend payments – which have so enraged Congress and state politicians in the Gulf region – could be suspended until the leak has been plugged after the reserve well is operational in August (if that goal is achieved).
BP could also offer to put the dividend in ‘escrow’ – a trust account held by a bank – only to be paid at a future date when everyone has a better handle on the full costs and legal liabilities of the spill.
If the company wanted to make some kind of gesture to investors – who are already suffering serious pain as a result of the loss of value of their holdings – it could offer them scrip (free) shares in lieu of a cash payout.
BP is determined to fight for its independence until the bitter end.
Reports, for instance, that state-controlled PetroChina might make an opportunistic bid for the company are almost certainly fanciful.
Some 40 per cent of BP’s oil assets are in America following its takeovers of Sohio in the 1980s and Amoco and Arco in 2000.
The one thing the U.S. has made absolutely clear is that it will not allow Chinese companies to take over American strategic assets.
Recently it blocked an attempted Chinese bid for the far smaller and weaker Unocal petroleum concern.
More likely bidders would be its European rival Royal Dutch Shell or the American giant ExxonMobil – which has been working alongside BP in the Gulf of Mexico in seeking to end the spillage.
However both companies might be fearful of the unknown legal liabilities that may arise as the quixotic state courts and their juries start making judgments against BP.
What is absolutely clear is that gaffe-prone Tony Hayward, who has rapidly become the most hated man in the U.S., will not personally survive this disaster.
He will not be sacked in mid-battle when his geological and engineering knowledge are vital to resolving the crisis.
But investors are certain to demand his head – after a calamitous public performance – when and if the immediate crisis comes to an end.