(The authors are Reuters Breakingviews columnists. The opinions expressed are their own.)
By Karen Kwok and Yawen Chen
LONDON, April 12 (Reuters Breakingviews) – For any ambitious M&A adviser, there’s obvious appeal in pitching clients on a potential takeover of BP. The $110 billion energy group is cheap relative to rivals, and its new CEO is still learning the ropes. It also has assets that may appeal to cash-rich buyers like Abu Dhabi National Oil Company (ADNOC), which recently pondered a swoop on the British company, Reuters reported on Thursday citing people familiar with the matter. Other potential suitors include Norway’s Equinor or U.S. rival ConocoPhillips. Antitrust and national security concerns are a daunting deterrent, though.
BP’s depressed shares make it an appealing target. Despite a 3% jump on Friday morning, the company’s market value is less than 4 times its expected cash flow for the next 12 months, below European rivals like Shell, Equinor and France’s TotalEnergies. U.S. giants like Exxon Mobil, Chevron and ConocoPhillips trade at double BP’s multiple.
Former Chief Executive Bernard Looney’s ambition to transition to greener energy sources like wind and solar was set back by an energy crisis and rising interest rates. When Looney abruptly resigned in September, uncertainty about BP’s direction compounded its vulnerability. New CEO Murray Auchincloss’s business-as-usual approach suggests no immediate change in the company’s fortunes.
BP also has attractive assets. For example, ADNOC needs more gas to comply with the ambitions of the United Arab Emirates to be self-sufficient domestically while exporting gas. BP hopes to supply 25 million metric tons of liquefied natural gas per year by 2025, while its existing customers could be a valuable outlet for the UAE, which is aiming to more than double its output capacity of LNG. ADNOC’s recent interest in European industrial groups like Germany’s Covestro also demonstrates its appetite for ambitious deals. Meanwhile, Equinor shares a similar non-oil spending target with BP while ConocoPhillips is one of the few American players that has not splurged on domestic acquisitions.
Yet any prospective bidder would face hefty obstacles. Russia’s invasion of Ukraine and the rush to find alternative sources of gas has underscored the critical status of energy suppliers. Britain has also become a more unpredictable destination for overseas buyers, as the UK government demonstrated recently when pushing through legislation to prevent a UAE-backed consortium from buying the Telegraph newspaper. Britain could terminate BP’s oil and gas licences in the country if an unwanted new owner took charge. Meanwhile, European Union antitrust regulators would scrutinise the effects of any takeover on competition. Even European or U.S. buyers could face objections.
Any buyer confident of overcoming these hurdles would nonetheless face a lengthy period of limbo, prompting other oil groups to jump in. For now, a BP takeover may work best on paper.
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(Editing by Peter Thal Larsen and Oliver Taslic)