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Will BP be bought by a US rival? I doubt it

Daily Telegraph

Given America’s dislike, nay hatred, of BP it would be ironic if a US company ended up buying it.

By Damian Reece, Head of Business
Published: 7:00AM BST 30 Jun 2010

US oil company Exxon Mobil has been touted as a possible buyer of BP

But that’s exactly what analysts at JP Morgan Cazenove have been postulating in a research note published on Tuesday. They describe a $133bn (£90bn) bid versus BP’s current value of $89bn (£60bn). The suitor? Exxon Mobil.

I’m sure Exxon’s boss, Rex Tillerson, has been watching events in the Gulf more closely than most. Likewise Peter Voser, his opposite number at Royal Dutch Shell. The value on offer at BP’s current stockmarket price is as obvious to them as it is to JP Morgan Cazenove.

But BP is suffering from a one off, highly visible event which makes bidding awkward. This is no long-term, gradual slump that has been slowly eating away at BP’s value allowing a bidder to ride to shareholders’ rescue. As soon as it’s clear BP is getting on top of the containment and clean-up operation in the Gulf of Mexico its share price is likely to recover and the value gap starts to disappear.

JP Morgan Cazenove reckons BP is trading on a 62pc discount to the sum of its parts – tempting to a bidder but why would a shareholder want to share that upside with anyone else?

If things do get worse for BP politically the company will get even cheaper, so why bid now? But they may well look rosier in a year, including a reinstated dividend, so why sell now? Assuming BP plugs the hole and cleans up the mess (and pays its bills on time) the only reason it should succumb to a bid is if management subsequently fails to capitalise on its reprieve and its chance of resurrection.


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