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Bloomberg: Shell, BP Merger Is Unlikely Given Few Benefits, Says Bernstein

By Fred Pals

May 18 (Bloomberg) — A merger between Royal Dutch Shell Plc and BP Plc, Europe’s two biggest oil companies by market value, is unlikely because of a lack of “strategic benefits,” according to Sanford C. Bernstein.

A Shell/BP combination would be politically `unacceptable” with high commodity prices and would also run into competition issues, London-based analyst Neil McMahon wrote in a note today. “Given these issues we believe that this is not the right time for mergers in the industry to become commonplace,” he added.

A merger between the two would create a company worth $459 billion at current share prices, about $2 billion smaller than Texas-based Exxon Mobil Corp., the world’s largest oil company.

Shell, based in The Hague, overtook BP in size last year as it recovered from a 2004 reduction in its oil and gas reserves. BP, whose headquarters are in London, had its reputation tarnished by a series of mishaps including oil pipeline leaks in Alaska.

Analysts at ABN Amro Holding NV wrote Dec. 5 that Shell, BP and Total SA, Europe’s third-largest oil company by market value, should consider merger possibilities that would create value for shareholders. A merger between any two of the three would improve cost savings, boost revenue and lead to improved analyst share recommendations, they said.

“The majors are already so large so they would not be able to get any better service deals with oil service companies,” McMahon said. “In fact being too big could be a threat to governments in many locations,” McMahon added in the note.

Bernstein rates both BP and Shell at `market-perform,’ though it prefers Shell over its rival. McMahon has a share- price forecast for BP of 568 pence and 1,887 pence for Shell.

BP stock gained 2.3 percent to 583.5 pence as of 11:01 a.m. in London, lifting its gain for the year to 2.9 percent. Shell’s London-traded A shares, up 4.6 percent this year, climbed 2 percent at 1,867 pence.

To contact the reporter on this story: Fred Pals in Amsterdam at [email protected]

Last Updated: May 18, 2007 06:17 EDT and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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