Oh No, It's Back

Todd Shriber
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If ever there was a corporate rumor that could be compared to the cat with nine lives, my nomination would be BP takeover speculation. Obviously, this rumor flew around quite a bit in the weeks and months following the tragedy in the Gulf of Mexico last April, with analysts and plenty of credible media outlets opining on the odds of Europe's second-largest oil company being taken over.

Some folks even came up with cheeky alternatives for what BP stands for such as ''Buy Please'' and ''Being Purchased.'' For better or worse, the cat is purring again following a New York Times piece that I mentioned in a news story here on Monday that says BP is ''fast becoming a takeover target.'' The piece is well timed as BP's shareholder meeting is scheduled for Thursday and I suspect this is going to be an ornery group of investors.

While the post-spill bounce in BP (BP) shares has been impressive on a percentage basis, using a market value of $146 billion, the Times reports BP is still light $75 billion in market value from before the spill. Actually, BP finished Tuesday with a market cap of just over $141 billion, so it is missing $80 billion in pre-spill market worth.

The market cap issue is of course related to the discounted share price that the Times cites as one reason BP could be takeover bait. The other two issues are also joined at the hip: BP recently suffered a strategic setback and the management team is now weakened. CEO Bob Dudley has undoubtedly been chastened by what in all likelihood will be the collapse of BP's deal with OAO Rosneft.

We have covered this story extensively in the news section here on OilSlick, so I will not rehash all the details, but the bottom line is time is running is out for this deal to be salvaged and if I were a betting man, I would bet that BP and Rosneft will not be teaming up to explore for oil in the Arctic Circle anytime soon.

Back to the takeover scuttlebutt, the Times points to the same cast of characters as perhaps being interested in BP, those being Royal Dutch Shell (RDS-A) and Exxon Mobil (XOM). Either could afford BP and either would perhaps find the cost synergies compelling. It has been said that 90% of big acquisitions fail to create shareholder value. I am not sure if that is accurate or just a bit of hyperbole, but the oil industry is one place where the companies know how to make a mega deal work for investors. Exxon did with Mobil. Chevron (CVX) did with Texaco. Even BP can say the ARCO acquisition was a good move.

The Times said an Exxon-BP marriage could yield savings of $10 billion to $12 billion on an annual basis. Still, BP faces the possible specter of a massive gross negligence tab for the Gulf spill, which could keep potential suitors at bay in the near- to medium-term. That said, if Dudley's position becomes untenable, and it could be inching that way right now, Rex Tillerson and Peter Voser may not think twice about making a move.