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BP Seen takeover target after settlement as value trails - Essay Example

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Name Tutor BP Seen Takeover Target Following the BP’s chief executive move to sell the company’s 50% stock in TNK-BP, the global oil company has been seen as a takeover target. The purpose of the move, to sell assets, was to rescue the company following the huge losses incurred and the large amount of money the company paid for the cost of 2010 oil spill…
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BP Seen takeover target after settlement as value trails
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Download file to see previous pages The company’s reserves are worth $ 7 a barrel while its rival Shell is worth $14. The company’s market value is the least compared with the other big four companies. The 50% sold accounted for about two third of the company’s oil production. The assets were in exchange of $12.3 billion cash and 12% stock in Rosneft, a Russian oil corporate. Rosneft is expected to also acquire the remaining 50% stock to assume full ownership. According to the London Business School, the selling of its assets, as well as, expensive settlements for suits related to the oils spill damages is equivalent to a takeover. The move, as well as, the oil spill tragedy, makes PB weak and its competitors including Royal Dutch Shell may bid for more stake. According the company’s Chief Executive, in an interview, the reduced company’s size may lead to a takeover attempt. The Chief Executive also unveiled the company’s expected short-term and long-term plans meant to spur growth. The plans include raising new projects’ margins and issuing back shareholders’ funds. The shareholders have also been rewarded by a 12.5 % increase in dividends paid in the 2012 third quarter. Additionally, due to the importance of the company to the United Kingdom, the government may oppose any move meant to bring a merge or acquisition. The company is one of the UK economy backbone employs a large proportion of the country’s population and earns the government huge revenues in terms of taxes. Among the company’s plans, there is a defense strategy following speculations that the company may be taken over. Many investors are interested in the company’s shares because of their low value. A takeover would be of benefit to the shareholders who would be able to recover some of their invested money. The company has liquidity problems, and the only option left of fighting for its survival in the market is through a takeover or selling of some of its assets. However, selling some of the assets is may be a dangerous move as it may result to bankruptcy of the firm thus requiring it to dissolve. Additionally, it may be difficult to raise capital through debt securities, for example, bonds because of the risk associated with the company. The rate of interest would be significantly high since the financial institution would consider the risk. It would be of benefit to the new owner because of the valuable assets and human capital that the oil company holds. Since it would be an entirely different company, no new suits would be expected and, therefore, the new owner will easily turn the nearly collapsing company into a global profitable company. If the new trader would then stop the BP’s shares trading, immediately after the purchase, the market price would go up. Finn states that “the value of the stock would go up because of decrease in demand (131)”. Additionally, if the new owner would be another oil company, the benefits would be even more. The market share and dominance would go up. This in turn, would increase the company’s profitability and market value. A merger would also be of benefit to the current shareholders. Their stock in the company has declined significantly since the oil spill disaster. In addition, they have not been getting the returns that made them invest in the company. A merger will inject ...Download file to see next pagesRead More
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