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BP falls back on US lawsuit, but broker pitches possible Exxon bid

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Thursday 16 December 2010

BP shares have fallen back following news that the US government had issued a lawsuit relating to the Gulf of Mexico disaster, prompting talk of a fine of up to $20bn and total costs relating to the spillage of $40bn.

But American legal action could ultimately lead to an American takeover of the company, analysts suggested. BP shares climbed earlier this week on speculation of Middle Eastern stakebuilding or alternatively a bid from Royal Dutch Shell, but yesterday Exxon Mobil was put back into the frame as a possible predator. JP Morgan Cazenove said:

BP trades on a proven reserve multiple that is equal to Exxon Mobil’s 10-year average finding and development cost and is 30% cheaper than its peers…buy or build?

That is, should Exxon spend money on developing its own new fields, or use the cash for a takeover of BP at roughly the same cost? On the lawsuit itself analyst at Jefferies said:

Should BP be able to settle the civil matters in 2011 we think it will benefit the stock, removing one of the largest uncertainties over the Macondo spill cost and potentially allowing the shares to return to something approaching their fair value, which we see as in the 565p region. Despite this we still remain somewhat cautious, as the legal process is far from over and BP will also present its new strategy on 1 February 2011. This will most probably include a resumption of the dividend, we currently forecast a 38 cent annual payout, 32% below the 2009 level, although some are expecting a more radical reduction. Although there is also some speculation that BP may lay out a new strategy, shape and structure, we don’t think BP’s management will have the appetite for such radical change at present.

BP ended the day down 6.55p at 470p but off its worse levels.

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