Exxon Positioning to Buy BP

[INRM]

I'm sure other members can come up with a link regarding this as I've heard it on the news already.

What I'm wondering is, is this really such a good idea. Exxon is already a huge company, and such a merger strikes me as ultimately creating a "too big to fail" scenario, except with an oil company instead of a financial institution.

[Travis]

Arguably Exxon is already "too big to fail."

Unless BP is in a much worse situation than thought I'm not sure Exxon could leverage this buyout and I think it would violate anti-trust laws.

[Tricky]

It is extremely unlikely. Even with the depressed stock price (which spiked up today with the announcement that the oil flow had been temporarily stopped), BP is such a big company that even Exxon-Mobil would have a difficult time coming up with that kind of money. Also, considering the publicity surrounding BP and EM's already bad reputation, the repurcussions of such a takeover would hit their own stock pretty badly.

Shell is probably the only other company that would have even a remote chance of pulling off a deal, but they're probably not interested for the same reasons.

One has to realize that the US, and specifically the Gulf of Mexico, while a tremendous profit-maker, is only a fairly small part of BP's global presence.

[dudalb]

And I don't think Exxon or Shell are anxious to pick up BP's legal liablities either, since Civil suits are the shoe that has not dropped on BP yet.

[Travis]

And I don't think Exxon or Shell are anxious to pick up BP's legal liablities either, since Civil suits are the shoe that has not dropped on BP yet.

Oh, absolutely. Who knows how many years BP will be tied up in court over this.

[timhau]

It is extremely unlikely. Even with the depressed stock price (which spiked up today with the announcement that the oil flow had been temporarily stopped), BP is such a big company that even Exxon-Mobil would have a difficult time coming up with that kind of money.

BP's market cap after yesterday is around $120 billion. According to Yahoo finance, Exxon has a bit over 13 billion in the bank; that is more than the total sum of their interest-bearing debt, and that appears to be the way Exxon wants to keep things for now. I really don't see them taking over BP as it would seriously hurt their balance sheet -- takeovers usually involve premiums, so I doubt BP was ever available for less than the $120 billion its shares are worth now, even though its market cap was under $100 billion for a while.

[bobhope2112]

Oh, absolutely. Who knows how many years BP will be tied up in court over this.
From a casual observer's perspective: all of them.

It completely astounds me that Rep. Barton would attempt to apologize for Obama's prediction that millions of gallons of crude oil dumped into the gulf would create some liability for bp. Am I really such a hippie that this opinion is parochial?

Is there really any chance that bp could remunerate the damage that's been caused, and will be caused, without going bankrupt? What's the blue book value for the Gulf of Mexico?

[funk de fino]

This is laughable woo.

[funk de fino]

Oh, absolutely. Who knows how many years BP will be tied up in court over this.

Maybe the same as Exxon eh?

[blutoski]

BP's market cap after yesterday is around $120 billion. According to Yahoo finance, Exxon has a bit over 13 billion in the bank; that is more than the total sum of their interest-bearing debt, and that appears to be the way Exxon wants to keep things for now. I really don't see them taking over BP as it would seriously hurt their balance sheet -- takeovers usually involve premiums, so I doubt BP was ever available for less than the $120 billion its shares are worth now, even though its market cap was under $100 billion for a while.

It should be noted that a takeover doesn't require buying a majority of shares in the target company - just a controlling interest. $13B could be more than enough.

It's possible to build strategic voting bloc agreements with other major shareowners to facilitate this.

But yeah: it's a risky purchase and the price may still be too high.

[Chris Hegarty]

Exxon-Mobil would have no logical reason to buy BP. It's way too large a risk especially if you consider the legal muck they'd have to wade through for many years over it.

[Almo]

Arguably Exxon is already "too big to fail."

Unless BP is in a much worse situation than thought I'm not sure Exxon could leverage this buyout and I think it would violate anti-trust laws.

What anti-trust laws. Exxon-Mobil violated anti-trust laws. Microsoft violated anti-trust laws. Nothing ever seems to happen to these gigantic firms (in the US).

[bit_pattern]

At what point do we do a Standard Oil on BP's ass?

[Travis]

What anti-trust laws. Exxon-Mobil violated anti-trust laws. Microsoft violated anti-trust laws. Nothing ever seems to happen to these gigantic firms (in the US).

I guess OSHA doesn't exist either then.

[timhau]

It should be noted that a takeover doesn't require buying a majority of shares in the target company - just a controlling interest. $13B could be more than enough.

It's possible to build strategic voting bloc agreements with other major shareowners to facilitate this.

But yeah: it's a risky purchase and the price may still be too high.

The $13B Exxon has in the bank would buy them a bit over 10% of BP. According to BP's investor relations pages (http://www.bp.com/extendedsectiongenericarticle.do?categoryId=901045 3&contentId=7019612), the two largest owners of the company (BlackRock and Legal & General Group) together own roughly 10% of the company right now. BP's ownership appears to be fairly scattered, so it's not an easy takeover target.

If Exxon wanted to control BP, I'm sure they wouldn't have any problems borrowing several billions more, but going deep into debt to finance a risky investment doesn't sound like the Exxon Mobil way of doing business. Personally, if I was a shareholder, I'd rather see them use their bulging war chest to pay a significantly better dividend instead of going on a speculative purchase spree.

[blutoski]

The $13B Exxon has in the bank would buy them a bit over 10% of BP. According to BP's investor relations pages (http://www.bp.com/extendedsectiongenericarticle.do?categoryId=901045 3&contentId=7019612), the two largest owners of the company (BlackRock and Legal & General Group) together own roughly 10% of the company right now. BP's ownership appears to be fairly scattered, so it's not an easy takeover target.

I don't know enough about BP's share ownership, but the other reason an aggressive takeover can succeed with small percentages is that many shareowners do not vote. If the typical annual vote is 40% including two 10% owners, then it's a question of that new 10% owner's strategic relationship with them.



If Exxon wanted to control BP, I'm sure they wouldn't have any problems borrowing several billions more, but going deep into debt to finance a risky investment doesn't sound like the Exxon Mobil way of doing business. Personally, if I was a shareholder, I'd rather see them use their bulging war chest to pay a significantly better dividend instead of going on a speculative purchase spree.

Yeah, that's a lot of cash.

[Toke]

I wonder, is there any way to split up a company into a liability part, and a having valuables part?

[blutoski]

I wonder, is there any way to split up a company into a liability part, and a having valuables part?

Probably not retroactively. But it's common to spin off an experimental brand if there's anticipation of risk.

eg: Tab soda and Orbit gum.

[Dr. Keith]

BP's market cap after yesterday is around $120 billion. According to Yahoo finance, Exxon has a bit over 13 billion in the bank; that is more than the total sum of their interest-bearing debt, and that appears to be the way Exxon wants to keep things for now. I really don't see them taking over BP as it would seriously hurt their balance sheet -- takeovers usually involve premiums, so I doubt BP was ever available for less than the $120 billion its shares are worth now, even though its market cap was under $100 billion for a while.

EM has been buying back shares every quarter for the last few years I have been watching, typically to the tune of several billion per quarter. In fact, last quarter they put about $2B of the $6.3B they earned into share purchases. One reason to do this is to build a portfolio of shares that could be used in a leveraged buyout. Essentially, a non-cash war chest.

A couple of years ago it was rumored that Chevron or ConnocoPhillips was the buyout target. At that point EM had a market cap around $500B and Chevron was around $250B while CP was about $200B, IIRC. Obviously the EM shares are worth far less now than when they were buying them back at $90/share a few years ago, but they still have a fairly large non-cash war chest that they can access for such buyouts.

Currently EM is around $270B and BP is around $110B. Not an impossible buyout target, but BP likely has too much liability to be popular with shareholders. Also, BP has a terrible reputation among the businesses that EM does business with. They are run very differently from EM. EM doesn't need that tinge.

[timhau]

I wonder, is there any way to split up a company into a liability part, and a having valuables part?

BP is currently sort of doing that. It's splitting itself up into a BP part and assets-previously-owned-by-BP (http://news.yahoo.com/s/ap/20100720/ap_on_bi_ge/us_bp_apache) part.

[timhau]

Obviously the EM shares are worth far less now than when they were buying them back at $90/share a few years ago

... which is exactly why I don't like share buy-backs as an alternative to dividends. Companies typically buy back their own shares when they have excess money, which is also typically when their share prices are at a high level. An extreme example of how to go wrong with this is provided by Nokia; they had a share buy-back program in 2003-2008, and they bought over a billion of their own shares back with €19 billion, bringing the number of outlying shares from about 4.9 billion to 3.8 billion. Today, Nokia's market cap is €26 billion.

[theprestige]

I'm sure other members can come up with a link regarding this as I've heard it on the news already.
INRM, on what news have you heard this, exactly?

And to all you other members, any links, or are we just engaging in a fantasy discussion of INRM's latest twaddle?