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Financial Times: BP’S OPTIONS – PROS AND CONS: ‘*Mega merger’

Published: January 18 2007 02:00 | Last updated: January 18 2007 02:00

*Tender offer for 10 per cent of its share capital

Pro

Would be a high-profile event and answer investors’ concerns about undergearing

Con

The buy-back programme so far has appeared ineffectual: would this do any better?

*Special dividend

Pro

May be a better way to return cash to shareholders and would appeal to income investors

Con

Would create tax problems. The special dividend might have to be cut or dropped if oil prices fall further

*Mega merger

Pro

Another high-profile move that could change investors’ perceptions. Opportunities for large cost savings

Con

BP’s record does not create confidence that integration of a merger would be successful. A deal with a another ‘super major’ such as Royal Dutch Shell would run into serious competition problems

*Break-up

Pro

BP’s current value is less than the sum of its parts. Separate upstream and downstream businesses would be valued more highly by the market

Con

Purely upstream company could have more volatile earnings. Opportunities for synergy between upstream and downstream would be lost

Copyright The Financial Times Limited 2007

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