Shell considers potential bid for BP following drop in share price

Shell is reportedly considering a potential takeover bid for BP if the struggling oil company’s shares continue to decline. The British oil major, ranked as the third-largest listed company in the UK, is said to be in talks with advisors to explore a bid. However, Shell is closely monitoring oil prices to determine the impact on BP’s valuation before making a final decision.

Recent reports suggest that Shell has been more actively considering a merger with BP in recent weeks than in the past. The company’s spokesman emphasized their commitment to enhancing shareholder value through a focus on performance, discipline, and simplification. Despite these discussions, Shell’s chief executive, Wael Sawan, has publicly downplayed the likelihood of pursuing takeover activities.

BP has faced a challenging year, with its share price plummeting by 30.4%, equivalent to 153p, over the last twelve months. This significant decrease has fueled speculation about potential takeover bids targeting the company. In response to the declining share value, BP has been implementing cost-cutting measures and divesting non-core assets, including Castrol and its stake in Lightsource BP, the solar panel business, totaling $20 billion.

Pressure on BP has increased with activist investor Elliott Management holding a 5% stake in the company and cautioning about the risk of a takeover if share prices do not improve through cost-saving initiatives. Earlier rumors hinted at Adnoc, the Abu Dhabi state oil company, as a potential acquirer in 2024. However, discussions regarding the company’s vulnerability to a takeover persist amidst ongoing challenges.

During a recent analyst call to discuss the first-quarter results, Sawan addressed inquiries about potential takeover activities. He indicated that while the company remains open to growth opportunities through acquisitions, it is currently focused on utilizing excess capital for share buybacks. This strategic approach aligns with Shell’s commitment to maximizing shareholder value and capital allocation.

Shell’s Chief Financial Officer, Sinead Gorman, underscored the company’s priority of value creation and emphasized the importance of aligning actions with enhancing shareholder value. With the decline in oil prices, Gorman highlighted the opportunity for Shell to leverage buybacks as a cost-effective capital allocation strategy.

Despite mounting speculation and concerns about its future, BP declined to comment on the potential takeover bid. The company’s management continues to navigate challenges and opportunities in an evolving market landscape. As Shell monitors developments and assesses strategic options, the industry awaits news of potential consolidation and the impact it may have on both companies’ futures.