BP M&A: The idea of BP being taken over by anyone would have sounded crazy before the Gulf of Mexico disaster. But it is now becoming commonplace to suggest that the UK oil major might even fall into the hands of Russia’s Gazprom or Chinese oil giant Petrochina. The scale of the disaster and BP's botched handling of the situation has certainly made it vulnerable, but it is not defenceless. Almost all conceivable combinations would face political obstacles.
UK governments have traditionally been a strong advocate of open markets. But the recent takeover of Cadbury by Kraft Foods has heightened sensitivity to foreign predators - and that was only a chocolate company. The idea of a strategically important energy company falling into foreign hands would provoke an outcry - even if Vince Cable, the new coalition government's business secretary, is apparently minded not to stand in the way, according to The Times newspaper. Look at four different scenarios. First, a takeover by Gazprom. The mere suggestion that the Russian gas group could bid for Centrica , the UK utility, triggered a political backlash four years ago. Russia has shown a willingness to use its immense energy reserves as a tool to put pressure on its neighbours. Would the UK really want to allow it to further strengthen its position in the industry?
Second, a bid by a Middle Eastern company. Countries such as Saudi Arabia and Abu Dhabi may be long-term allies of the UK. But they are both members of OPEC, which has held the West to ransom in the past - and are in an unstable region of the world. Again, there are potential energy security issues in a BP takeover.
Third, an acquisition by Petrochina. China is not a major oil producer, but it is an avid consumer. There could be worries about Beijing somehow diverting scarce oil supplies to satisfy its needs rather than those of the West.
Fourth, some move by a US group on BP’s US assets, which account for nearly half its value. Given that BP’s name is now mud in America, there might be some value to be created by shifting ownership to an Exxon or a Chevron.
But this could provoke howls about a political stitch-up - on the view that the White House had deliberately crushed BP’s value to allow a US bidder to snap up its American assets on the cheap.
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What’s more, these considerations just look at the potential UK political backlash. President Barack Obama would surely balk at the company falling into the control of a state that was not a US ally. Chinese oil group CNOOC abandoned its $19 billion bid for Unocal in 2005 after US regulatory obstacles were erected in its path.
Of course, the balance of power between China and America has shifted in the last five years. And Beijing will not have forgotten how the Bush administration tried to interest it in bailing out America’s banks, notably Morgan Stanley, in October 2008. Even so, Unocal was a minnow beside BP. Controversial suitors might well think they’d have to sell its US assets on to a palatable buyer.
There are, though, other options that don’t face political problems. The most obvious is BP’s traditional Anglo-Dutch Shell. But it would be unlikely to move so long as the scale of the clean-up cost as well as any changes to regulation remained uncertain. But once everything was clear, BP probably wouldn’t be so vulnerable anyway.
Finally, there could be a dawn raid. Even if a Gazprom or Petrochina would face difficulties in taking control of BP, there wouldn’t be political problems in buying a stake of, say, 20 per cent. The snag, though, is that they wouldn’t necessarily get much for their money. A 20 per cent stake wouldn’t guarantee board representation or a say over strategy. That certainly was the experience of China’s Chinalco when it swooped on Rio, the UK mining group.
M&A talk is likely to swirl around BP at least until it has plugged the leak in the Gulf of Mexico and found a credible new chairman and chief executive. And, in a situation as volatile as this, one can never say never. But the chances are that it will emerge with its independence intact.