Markets Abuzz Over BP's Fate

Takeover talk spills over from analyst's speculation naming ExxonMobil, Shell

LONDON -- BP PLC shares rose more than 9% in London Wednesday morning as the market reappraised the embattled company's value as a takeover target once the crisis in the Gulf of Mexico subsides, equities traders said Wednesday, according to a Dow Jones report. A research note on Tuesday by JP Morgan Cazenove Ltd. analyst Fred Lucas said BP's steep decline in share price makes it a prime candidate for a buyout, added a Reuters report.

"The market has lost sight of the intrinsic value that is resident in an asset-rich company like BP. We very much doubt that keen-eyed industry [image-nocss] players have lost sight of BP's value," Lucas wrote. He named Exxon Mobil Corp. and Royal Dutch Shell as the most likely bidders. And PetroChina has been mentioned in the past as a potential suitor, Reuters said.

"The JPMorgan note yesterday highlights the value case--not just for Exxon but by extension, for investors buying the shares down here," a trader in London who did not wish to be named told Dow Jones..

BP's stock price has cratered since the April 20 Deepwater Horizon rig explosion that has resulted in the largest oil spill in U.S history, said The Houston Business Journal. It closed at $27.05 per share on June 28, way down from its closing price of $60.48 on April 20.

Dan Pickering, a research analyst with Houston-based Tudor, Pickering, Holt & Co., believes a complete takeover by another major is unlikely, the report countered.
"One operational and one business challenge associated with another major acquiring BP is the refining business and the overlap from refining," he wrote. "Historically, this has been an area the [Department of Justice] has been very sticky about.... They clearly want to protect the U.S. gasoline supply and distribution."

Another issue is the firm's unknown liability, said the report.

"Are you acquiring the obligation to pay a $20 billion fund or a $40 billion fund? What are the losses going to be over time?," asks Pickering. "I think it's unlikely that a 'healthy' major would want to run the risk of getting entangled in the legal quagmire which could wind up being very, very expensive."

Pickering predicted that another major buying assets from BP would be more likely, the report said.

(Click here for previous CSP Daily News coverage of the BP situation.)