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Shell must be bold in its raid on BP

By Wilt Staph 

Shell is the least courageous of all the oil majors when it comes to acquisitions. The over-priced takeover of Enterprise Oil aside Shell has stood on the sidelines whilst all of its competitors, without exception, have concluded huge scale takeovers/mergers in the last ten years. The reason for this reluctance is not hard to find – essentially Shell has always been the most risk averse of the majors. This came partly from the company’s historic size which led to complacency (it was once the largest corporation in the world in any sector) and secondly from its utterly conservative and Calvinist mindset. The Dutch and the British have one thing in common – something that is reinforced when they come together – diffidence tempered by a curious lack of ambition and audacity. Everything has to be quantified to the nth degree – and by the time that the spreadsheets have finished whirring someone else has moved in and stolen the deal. 

BP’s assets are now available at a bargain price – it may not happen again. Shell needs to be ruthless in its predation on these assets. There are risks associated with a launching a rapacious attack – but they are far outweighed by the benefits. The risks are that if Shell is not diligent it could inherit some of BP’s very nasty liabilities. This need not be a problem. Obviously Deepwater Horizon and everything associated with it would be outwith any deal. But this is hardly a problem – BP has already rink-fenced the disastrous well in its books (including residual liabilities for clean up) so Shell would simply not acquire anything to do with this disaster. BP has other ongoing liability problems (e.g. at its Texas City refinery) but it should be possible to exclude these toxic assets from the takeover as well. The rest is plain sailing. BP’s upstream assets are attractive and at present available at a huge discount. Its downstream assets are not really wanted by Shell but to acquire them might be the spur to the separation of the upstream and the downstream which most observers see as essential to Shell’s future. Combine Shell’s downstream assets with those of BP and then either sell them or trade them off as an entirely separate entity. Any marginal anti-trust concerns (which only refer to the downstream) would be solved by this action. 

Shell must move quickly and ruthlessly. There is no need to spend too much time on the economics – at the present stock value BP is a bargain. The lawyers should be similarly sidelined – other than the need to do an adequate due diligence check. Will the ultimately cautious Peter Voser and his rather substandard top team see the chance and grab it with two hands?

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