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BP’s price gushes on Royal Dutch Shell bid hopes

In deepwater: BP’s shares are still way below the 655p level hit before the Gulf of Mexico disaster

By Tamsin Brown
Last updated at 12:28 AM on 5th January 2011

Almost £5billion was added to the market value of BP as investors flocked to the stock on hopes of a takeover.

Shares in the oil giant gushed up 27.35p or 5.88 per cent to 492.90p, putting them at a six month high and helping to push the FTSE 100 through the 6,000 level.

The big rise came after the Daily Mail reported on Tuesday that rival Royal Dutch Shell (23.50p higher at 2162p) had mulled an opportunistic takeover bid for BP during the Gulf of Mexico oil spill and could still make a bid if another suitor emerged.

Iain Reid, oil analyst at Jefferies International, said: ‘I don’t doubt that all the oil majors took a look at BP when the shares were at their low last year. I would not rule out some interest.’

As dealers returned to their desks after the festive break they piled into BP shares in the hope that it would be part of the mergers and acquisition boom that is predicted for 2011.

The latest jump in value, coming on the back of a rally in BP shares, means that the group is now worth £93billion compared to just £56billion when shares hit a low of 296p in early June last year – making a bid a much more expensive affair for a suitor.

But it is still some way below the 655p it hit before the disaster and the shares are relatively cheap compared to its peers, analysts said. However, uncertainties over the costs of the spill may make bidders cautious, analysts warn.

Reid said: ‘I would have thought that the companies that are big enough to buy BP are conservative enough to be pretty concerned about what the total costs of the Gulf of Mexico oil spill could be.’

Shell or any other potential bidder would also have to weigh up what the regulators would think of a deal. Reid believes that Shell and BP could achieve large economies of scale in the exploration and production business but warns there would be a considerable overlap in the two firm’s refining and petrol station operations.

Another analyst said: ‘It is stating the obvious, BP is a lot less attractive at £5 a share than at £3.50. But is there strategic logic? Absolutely.’

Helping positive sentiment in BP were hopes that the oil group’s compensation bill for the gulf oil spill could be smaller than originally feared.

Kenneth Feinberg, the lawyer looking after BP’s compensation fund for the explosion said in an interview that about half the £12.8billion pumped into the fund should be enough to cover claims.

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