Big acquiring big: Shell acquiring BP

Mr. Adelino Izidro
May 8
4 min read

Shell is strongly considering acquiring BP. doing so will send ripples across the Energy/Oil Industry whilst putting Shell on a higher-level rubbing shoulders with its American rivals.

In this article:

1. Shell Potential BP takeover

2. Activist Investors

3. Thoughts from RC analysts

Shell Potential BP takeover

This takeover has been thought and discussed many times over the decade. For several years now, BP has been losing money and, most recently, due to its Chief Executive Officer decision to implement net-zero actions, its share price has lost over 60% of its value since 2007. In contrast, Shell´s share price has remained the over the same period, giving it a valuation of £149 billion ($197 billion) – which is more than double the £56 billion market capitalization of BP.

Should this megamerger come to pass, Shell will increase its production output and position itself on the same level as its American rivals (Exxon and Chrevon).

According to some sources, Shell is waiting to see BP´s share price and Brent Crude Oil price plummet before initiating its plan. So, the question we ought to be asking is how much lower? Brent Crude Oil´ price has been falling since 6th of June 2022 from $120.00 to last week´s low of $61.00 (practically a 50% fall).

Activist Investors

Some BP investors are – for lack of better words – “frustrated” with current affairs and believe that the path outlined is not aggressive enough to solve the situation. Elliot Investment Management, who owns 5% in BP believes that the non-aggressive plan exposes BP to potential takeover.

This matters a lot to those that have significant investment in both companies. Certain things must be taken into consideration. For those that are investors in Shell, their returns will depend on performance of BP. For those that are current BP investor, they will have to think how Shell´s acquisition of BP will affect the management thereby affecting the performance and returns for the investors.

Thoughts from RC analysts

At RC the Fund managers have a broader and longer-term view for this potential megamerger. We are currently analysing if after the merger, Shell will continue to be a good fit for our Cross-Sector Fund portfolio based on risk-adjusted returns and 2 other key metrics. The US President Donald Trump´s trade war and surprise acceleration in supply by OPEC+ has put downward pressure on Brent Crude and pushed the price below $70 a barrel. Potentially, this should help in stabilising market operations, revenue and risk of holding Shell in our portfolio.

Bank of England expected Interest rate cuts increases financial viability of a large-scale acquisition like Shell buying BP, which would be one of the biggest energy mergers in history.

RC analysts and fund managers have a lot to consider going into the BOE monetary policy meeting and potential technical recession for the US economy and future suitability of Shell as a key asset in the Cross-Sector fund.

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