Some stocks are perpetual take-over targets. They have the right combination of assets that make them almost irresistible to other firms. When it comes to energy stocks, European giant BP plc (ADR) (NYSE:BP) is that firm. But because of its vast size — and $100 billion plus market cap — BP stock has traditionally been just a bridesmaid and never taken to the M&A itself.
Well, BP perpetual top suitor — Exxon Mobil Corporation (NYSE:XOM) — may have finally come calling.
Reports have begun to circulate that XOM may finally be preparing to buy BP. Assuming it passes the regulatory mustard, we could be looking at one of the largest energy deals in history. A transformative deal for both XOM and BP stock.
At the same time, the reports are simply just rumors today. There are no guarantees that the deal could be coming true in the weeks ahead.
So will the deal happen? For long-suffering BP shareholders, they better hope so. It could finally be the break they are waiting for.
Deepwater Horizon Disaster Still Hurts BP Stock
Despite being one of the biggest energy stocks in the world, BP has continued to suffer from the fallout of the Deepwater Horizon disaster. If you remember, the 2010 explosion was the largest oil spill in history. BP stock fell more than 50% on the news of the spill and the resulting five years of legal battles caused the firm’s share to be dead money over that time.
Bloomberg notes that during 2010, BP had the same market cap as European rival Royal Dutch Shell plc (ADR) (NYSE:RDS.A, NYSE:RDS.B). Today, BP is only valued at about half as much, despite being a bigger oil producer. Shares of BP stock are still about 30% lower than its peak before the Deepwater disaster.
Part of the reason is the continued legal overhang from the disaster. The end result of the multi-year trial was tens of billions of dollars’ worth of fines and legal woes for BP. Many of which still need to be paid.
With a lower market cap and frustrated shareholders aplenty, rumors have once again begun to make themselves known that BP could be on the table. Over the weekend, London newspaper the Evening Standard reported that XOM had begun to talk to BP’s largest shareholders- – mutual fund powerhouses BlackRock, Inc. (NYSE:BLK) and Vanguard — about their possible votes in a buyout situation.
Analysts peg the buyout could cost Exxon a cool $145.8 billion dollars. And XOM does have the ability to do such a transaction. Its debt levels remain relatively low for an oil firm of its size and its continued buyback programs have resulted in a massive cache of treasury stock that it could use as a bargaining chip in a giant deal like this. The overall lower value of the British pound hasn’t hurt either.
XOM and BP Does Make Some Sense
Analysts have been less than sanguine about the deal. Several have questioned what Exxon would want from BP that it couldn’t get from spending its money elsewhere. But there are really 3 million reasons.