BP Talk
Will BP Be Acquired?
What are the chances of a takeover?
By Stan Awtrey & Joe Taylor
BP Acquisition Rumors
07.01.10, 11:09 AM EST
There's no doubt that BP has been crippled as a company since the incident in the Gulf of Mexico occurred in April. The explosion of that oil rig and subsequent inability to stop an oil well from spewing thousands of gallons of oil into the sea each day has caused the stock price of BP to plummet to a 52-week low.
Now that BP has been weakened financially through weeks of environmental fines and lawsuits, there may be competitors on the sidelines who are licking their chops waiting to get a piece of the gas and oil giant. Rumors have been flying for weeks about whether Exxon Mobil or Shell Oil could be waiting for the right opportunity to make their move toward an acquisition.
The question being asked by a lot of people who follow the stock market is: Will BP be taken over by another company? Will BP be acquired by Exxon Mobil? Will BP we consumed by Shell? Will Chevron come in and be involved in a takeover? Is it possible that BP could thwart all attempts at an acquisition by declaring bankruptcy?
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Here's a look at the possible suitors:
Exxon Mobil - It might love to grab BP in its weakened condition. Exxon Mobil would inherit more access to deep water oil and obtain its expertise in the exploration process. Exxon Mobil has a market size of around $271 billion, while BP's cap is about $90.1 billion. Exxon Mobil's net cash from the first quarter of 2010 was $4.3 billion, putting it in solid shape to make a bid for BP. Exxon Mobil's return on capital was 19 percent and its return on equity was 22 percent.
Royal Dutch Shell - Shell may be interested in getting involved with the BP acquisition circus, but it doesn't have the same strong footing as Exxon Mobil. Shell has a market cap of $160 billion and recently bought an energy company in Australia. Shell has a net debt of $28.8 billion, with an 11.8 percent return on capital and a 16 percent return on investment.
Chevron - There may be interest, but is there enough money? Chevron had $700 in net cash, but showed a 15.5 percent return on capital and a 19.4 percent return on equity. Chevron has market cap of $138 billion, which is smaller than Shell's and would require more leverage.
China - No other country on earth is likely to have a greater need for oil than China, as it grows and becomes more industrialized. Could it make sense for the Chinese government to cut out the middleman and own its own oil and gas company? And since China owns a great percentage of the U.S. debt, they'll have additional bargaining power.
TNK-BP - The Russian joint venture partner of BP has said it may be interested in buying some of BP's assets. They're especially interested in some refinery assets in Europe, if they become available.
Norwegian analyst Gudmund Halle Isfeldt told Bloomberg News, "There is a 10-20 percent chance of BP being taken over."
Ivor Pether, an account manager at Royal London Asset Management, said, "There aren't many buyers at this point because the near-term uncertainty is so high."
Despite all the environmental woes, a purchase of BP could help competitor go green - that is putting more green in their bottom line. Despite the oil well leak, BP has assets in more than 100 countries, 18.3 billion barrels of oil reserves and had $239 billion in revenues in 2009. BP has 10 new projects planned in the Gulf of Mexico over the next five years and already has 500 leases there. Its operation in the United States is worth more than $98 billion.
Only time will tell whether a proper suitor come swooping in to buy BP when the company is at its weakest, but most analysts believe things will remain unchanged.
Should I invest in BP?
What's the smartest path to take? Such a decision requires a lot of examination and evaluation and no action should be taken without understanding all the possibilities. The best starting point is by obtaining a quality stock market education, such as one offered by BetterTrades. The company has classes designed to teach you how the market operates and how to make smarter decisions when it comes to investing and trading. BetterTrades has free classes available on its website that is accessible to interested visitors each day.
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