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BFW 04/21 01:58 BP Readies Defenses as Oil Industry Responds to Shell’s BG Raid

BP Readies Defenses as Oil Industry Responds to Shell’s BG Raid
2015-04-20 23:01:00.5 GMT


By Rakteem Katakey, Matthew Campbell and Dinesh Nair
(Bloomberg) -- As the oil industry takes stock of Royal
Dutch Shell Plc’s $70 billion move for BG Group Plc, one company
has more to chew on than most.
BP Plc, the U.K.’s most storied oil producer and prime
mover in previous rounds of consolidation, is now thinking what
was once unthinkable: that it could be next in the cross-hairs.
BP executives are concerned the company is vulnerable to an
opportunistic bid, according to people familiar with the
situation. In response, they’ve stepped up internal reviews of
takeover scenarios and war-gamed defense strategies with
advisers from firms including Morgan Stanley, said the people,
all of whom asked not to be identified discussing a private
matter. Exxon Mobil Corp. and Chevron Corp., the two largest
U.S. producers, are seen as the only realistic predators.
While some in the industry believe a move for the British
company remains unlikely because of still-unknown legal
liabilities from the 2010 Gulf of Mexico oil disaster, there’s
at least one good reason for Chief Executive Officer Bob Dudley
to be paranoid. Before ruling themselves out by going for BG,
Shell took a hard look at buying BP, one of the people said.
“As a matter of good practice, all companies have possible
defense arrangements in place,” BP spokesman David Nicholas
said in an e-mail. “BP has made no changes to our long-standing
arrangements in response to recent moves in the market.”
Representatives for Exxon, Chevron, Shell and Morgan
Stanley declined to comment.
“Exxon saw Shell do a deal and they would certainly be
looking around, it’s the same for Chevron,” said Christopher
Geier, partner in charge at Sikich Investment Banking in
Chicago. “From a value perspective, it’s possible BP could be
ripe for a takeover.”

Relative Decline

That BP’s independence is even up for discussion shows the
relative decline of a company that pioneered exports from the
Middle East, helped start Alaska’s oil industry and led the
exploration of the North Sea. In the 1990s, its acquisition of
U.S. giant Amoco Corp. forced the rest of the industry to react.
As recently as 2010, BP had the same market capitalization
as Shell and produced more oil and gas. Today, even before the
BG deal is completed, BP’s value at $131 billion is two-thirds
of Shell’s. It’s even further behind Exxon, the world’s most
valuable oil company at $368 billion.
There’s one clear reason, of course: the Gulf oil spill
that left BP facing costs that may eventually exceed $40
billion, forcing it to shrink to survive. Since taking over in
the months following the spill, Dudley’s sold about a third of
the company’s assets and production has fallen from close to 4
million barrels a day in 2010 to a little more than 3 million.
Some have applauded the creation of a leaner, more profit-
focused company, but BP can no longer claim to be in the first
rank of global oil and gas producers.

Deep Water

The slimmed-down BP still has plenty to attract potential
acquirers, including strong deep-water prospects in Angola and
the Gulf of Mexico, a refining business that’s outperformed
peers, and an industry-leading trading outfit.
Dudley has few options to make the company harder to buy.
The traditional route is a defensive acquisition, a course of
action the company is considering, the people familiar with the
matter said.
However, any deal large enough to dissuade potential buyers
would also represent a significant departure from Dudley’s
avowed focus on keeping BP to a manageable size.
A fresh buyback of shares has also been suggested by
advisers, the people said. The company returned $8 billion to
investors last year after selling its stake in a Russian
business.
Dudley declined to comment specifically on BP’s plans, or
on his views of its vulnerability.

Change Strategy

“On the industry as a whole, if oil prices stay down,
we’ll probably see more M&A,” he said after the company’s April
16 shareholder meeting in London. “If it stays lower for
longer, the dynamics will change and companies will change their
strategy.”
Ironically, factors that have contributed to BP’s
difficulties could also keep it from being bought. The legal
liabilities stemming from the Gulf spill are still open-ended as
the company remains embroiled in U.S. litigation.
A U.S. judge is expected to rule on the size of federal
fines BP must pay later this year, which could total $13
billion, and the company is being sued by several states. In any
event, appeals are likely to keep the company’s lawyers busy for
years.
Russia is another question mark. After a complex 2012 deal
to sell its stake in Russian venture TNK-BP, BP owns 20 percent
of OAO Rosneft -- the Kremlin-controlled oil producer that’s
subject to U.S. and European Union sanctions. While in the long
run that brings a prime position in the world’s largest energy-
producing country, there are plenty of near-term risks.

Enterprise Value

Despite those pitfalls, BP’s attraction for potential
buyers isn’t hard to quantify. The London-based company has the
lowest enterprise value relative to the volume of oil and gas
production of any of the six largest U.S. and European energy
companies. Based on the current share price, its oil and gas
reserves are valued at $7.49 a barrel, almost half Exxon’s.
Discussions of likely acquirers for BP tend to return to
the U.S. firm. Exxon, the world’s largest private oil producer
is on the hunt for acquisitions in order to compensate for
difficulties expanding its own production, people familiar with
the situation have said. With almost no debt and more than $200
billion in shares repurchased over the past 16 years, Exxon has
the financial power for almost any conceivable transaction.
“The issue may not be that BP is weak, but that Exxon is
that much stronger,” said Scott Cockerham, a managing director
in Houston at energy advisory firm Conway MacKenzie. “If Exxon
thinks BP is a good fit, it can act on that assumption.”

Hurdles Remain

Nonetheless, plenty of hurdles remain to an Exxon offer.
The Texan company’s famously buttoned-down engineers have long
been privately disdainful of BP’s internal practices and safety
record, making a cultural fit difficult.
An acquisition by Exxon could also make the combined
company too big, attracting the attention of antitrust
regulators around the world. And the U.K. government might
object to the sale of a formerly state-owned company -- until
the 1990s known as British Petroleum -- to an American concern.
Whether Exxon makes a play or not, BP is adapting to a
world where Shell’s deal has upended the industry’s expectations
on mergers and acquisitions.
“All players are looking at opportunities,” Eldar Saetre,
the CEO of Norway’s largest oil producer, Statoil ASA, said last
week. “There could be more deals.”

For Related News and Information:
Statoil Chief Say More Oil Deals Likely After Shell-BG Merger
Shell-BG Deal Puts Pressure on Big Oil to Consolidate Again
Top Oil Stories: OTOP<GO>

--With assistance from Javier Blas and Ruth David in London and
Matthew Monks in New York.

To contact the reporters on this story:
Rakteem Katakey in London at +44-20-3525-3813 or
rkatakey@bloomberg.net;
Matthew Campbell in London at +44-20-3525-8684 or
mcampbell39@bloomberg.net;
Dinesh Nair in London at +44-20-3525-3212 or
dnair5@bloomberg.net
To contact the editors responsible for this story:
Will Kennedy at +44-20-3525-3603 or
wkennedy3@bloomberg.net
Elizabeth Fournier

Time Warner Cable Selloff Unlikely as Malone Stands By: Real M&A
2015-04-20 22:17:24.601 GMT


(For a Real M&A column news alert: {SALT REALMNA <GO>}.)

By Tara Lachapelle
(Bloomberg) -- The good news for Time Warner Cable Inc.
investors is that the shares won’t fall much if its merger with
Comcast Corp. collapses.
The planned $68 billion deal including debt, 431 days in
the making, is facing resistance from regulators. Comcast could
ultimately walk away if concessions needed to win approval are
too strict, people familiar with the matter said.
Given that Time Warner Cable’s revenue and earnings are on
the upswing, analysts see any shareholder losses in the absence
of a deal as minimal and probably temporary. The stock could
fall about 7 percent at most, according to the lowest estimate
compiled by Bloomberg. That compares with a potential gain of 11
percent if the deal still happens.
Backstopping Time Warner Cable’s share price is the
expectation that Charter Communications Inc. would buy the
company if Comcast doesn’t. Charter, backed by billionaire
dealmaker John Malone, was the original suitor for Time Warner
Cable back in 2013 before Comcast unexpectedly trumped its
offer.
“When I work through what this business is worth
regardless of a deal, I don’t see tremendous downside,” David
Heger, a St. Louis-based analyst for Edward Jones, said in a
phone interview. “Partly that’s based on the fundamentals of
the business, but also Charter is very interested in Time Warner
Cable and would potentially make another bid for them.”
Justin Venech, a spokesman for Charter, declined to
comment.

Justice Department

Time Warner Cable rose 0.8 percent on Monday to $150.87,
giving it a market value of $42 billion. The stock lost about 5
percent Friday after Bloomberg News reported that staff
attorneys at the U.S. Justice Department’s antitrust division
were nearing a recommendation to block Comcast’s bid. The two
companies will meet with the Justice Department this week.
As a stand-alone business, Time Warner Cable would be
valued at $140 a share, according to Mike McCormack, a New York-
based analyst for Jefferies Group. New Street Research’s
Jonathan Chaplin pegs it at $147. They both also note, however,
that Charter will probably buy Time Warner Cable if Comcast
doesn’t. Charter’s market value stood at $21 billion on Monday.

Charter Bid

Chaplin estimates Charter now would have to bid at least
$160 a share. Comcast’s all-stock offer was worth $158.82 when
it was announced in February 2013 and $168.10 on Monday.
“Charter is likely to come in pretty aggressively with
another offer, possibly at a premium to Comcast’s original
offer,” Jeff Wlodarczak, a New York-based analyst for Pivotal
Research Group, said in an e-mail. He also said Charter has more
financial flexibility: Its shares have risen 37 percent since it
formally bid for Time Warner Cable back in January 2014, and
Time Warner Cable has lowered its financial leverage.
Another option: Time Warner Cable becomes an acquirer. It
would be a reversal for the cable company, but Bright House
Networks, Cox Communications Inc. and even Charter are possible
targets, said Rich Greenfield, an analyst for BTIG. Charter
agreed to buy a majority stake in Bright House for $10.4
billion, but it’s contingent on Comcast’s Time Warner Cable
acquisition closing.
“It’s very possible that if this deal falls apart, Time
Warner Cable becomes the acquirer,” Greenfield said in a phone
interview. “Time Warner Cable is notably better now than they
were before, so there’s no way in the world they’re going to
sell for anywhere less than what Comcast offered.”

For Related News and Information:
Comcast, Time Warner Said to Discuss Deal With DOJ Wednesday
U.S. Antitrust Lawyers Said Leaning Against Comcast Merger
Comcast Deal Collapse Would Kill Other Mergers in Domino Effect
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>

To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman