By most estimates, BP plc (BP) stock has shed more than $70 billion in value since April 20 when word first broke about an explosion on an oil rig in the Gulf of Mexico that subsequently resulted in the worst crude oil disaster in U.S. history. And by most Wall Street estimates, the sell-off is overdone — sparking speculation of a buyout of the crude oil stock from western rivals like Exxon Mobil (XOM), Royal Dutch Shell (RDS) and Chevron (CVX).
There are also thoughts about Brazil’s state run oil giant Petrobras, more formally Petroleo Brasileiro (PBR), as a potential BP buyout suitor – and a few fringe theories about a Chinese takeover via merger or buyout with Beijing’s nationalized oil companies such as China Petroleum & Chemical Corporation (SNP) or Sinopec, or China National Offshore Oil Corporation (CEO) known as CNOOC.
So how likely is it that BP will see a buyout, merger or takeover? Let’s look at the numbers:
As BP stock has slumped from about $60 at the time of the initial oil rig explosion in late April to $36.52 as of Tuesday’s close. That’s a decline of about 40% in about 30 trading days! BP’s market cap is now about $115 billion, making it considerably less than oil industry leaders.
Exxon Mobil boasts a market size of around $270 billion, which is over twice the size. XOM just made a huge purchase of natural gas stock XTO energy, with a buyout worth $41 billion announced at the end of 2009. That makes a BP buyout tricky with all that cash tied up, but also proves that Exxon has the means to make a huge buyout if its leadership thinks its in the company’s best interest. There is clearly a liability risk with any BP buyout while the crude oil situation in the Gulf remains unresolved, but BP’s core business is strong and Exxon would benefit from gobbling up a smaller rival to expand its already massive reach.
Related Article: Exxon Mobil – 5 Reasons to Sell XOM Stock
As for Royal Dutch Shell, RDS stock has a market cap of about $160 billion at current valuations. Shell just bought out Australia’s Arrow Energy for $3 billion in March, showing it too is diversifying beyond its crude holdings as Exxon did with the XTO deal. But a buyout of BP would add a solid oil business to its balance sheet — if BP could manage to buy out a company that until just a few weeks ago was about the same in market size.
Last among western suitors is Chevron, and this stock seems least likely. CVX stock is even smaller than Shell, with a market cap of about $145 billion at current valuation. Even at BP’s beaten down pricing it would take quite a leveraged bet for Chevron to acquire the oil stock’s operations in a buyout. And such a move would expose Chevron to significant losses if BP liabilities remained a problem due to continued flow of oil in the Gulf or consumer backlash.
Though it’s highly unlikely BP shareholders would permit a buyout by non-western oil interests, its worth noting that Brazil’s state-run oil giant Petrobras has a market cap of about $156 billion right now and is perhaps more suited for a buyout of BP stock than Chevron and at least as capable of a takeover as Royal Dutch Shell. But oil reserves are so strategically linked to national and economic security that its highly doubtful a buyout would be approved to Brazil, even if it currently is a great trade partner with America and Europe.
That said, Petrobras has a much better chance at a buyout of BP than China. CEO and Sinopec combined total about $130 billion in market size, but their state ties mean very deep pockets and China could surely raise the capital if it needed to. After all, the country threw together a targeted $586 billion fiscal stimulus in record time to ward off the recession so it could surely come up with the cash for BP. But a buyout of this crude oil company by China is just a pipe dream and would never be allowed by shareholders or politicians.
So as of this writing, it appears that a buyout of BP would be a stretch. But at the rate of decline that this crude oil stock has seen, it’s not outside the realm of possibility that a company could sweep in with a buyout offer if the losses continue to mount. Conoco Phillips (COP) is one of the “smaller” oil stocks, with a market cap of $76 billion. If BP sees its market size slump to that level, then you can bet the buyout talks will move from the speculation phase into serious discussions. Even with the liability of the gulf oil spill, a 50% discount on BP compared with its value just a few months ago may be too much for a buyer to pass up.