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White House battle fuels BP takeover speculation

BP's brutal conflict with the White House over the Gulf of Mexico oil spill has fanned speculation about the British firm's long-term health, making whispers about a possible takeover ever more audible.

india Updated: Jun 11, 2010 11:55 IST

BP's brutal conflict with the White House over the Gulf of Mexico oil spill has fanned speculation about the British firm's long-term health, making whispers about a possible takeover ever more audible.

Facing plummeting stock value, clean-up costs estimated in the tens of billions of dollars and withering attacks from President Barack Obama, BP's sale is now openly discussed by investors.

Britain's Standard Chartered Bank has suggested a takeover by PetroChina to weather the storm, an unthinkable proposal even a few months ago.

But with tens of billions wiped off BP's market value, the wounded giant might seem like easy prey for cash-rich competitors like the Chinese state-owned firm.

Standard Chartered admitted any Chinese effort to snap up the crown jewel of British industry would be beset with political problems, but said creating the world's largest oil firm made business sense.

"We expect a full dose of skepticism on this as a real-world proposition, although we argue for the persuasive economics," they told clients.

"We expect China would support such a deal, while regulators in the United States may raise antitrust concerns.

"While we cannot rationalise any argument that the deal should be blocked on grounds of national interest, local politicians may take a different view."

But other experts are in little doubt that the likes of Shell or Exxon could also be waiting in the wings.

"The rumours started a couple of weeks ago. It is all speculation at this point," said Phil Flynn, an energy analyst at PFG Best. "But when you take the value of the stock and hit it so hard that it is basically trading below book value, people are going to take notice."

BP's net assets, its book value, was worth around 103 billion dollars at the end of March, more than the total value of its shares today.

Yet despite the bargain basement price, any suitor would have to take on the company's liabilities, which at the moment are legion.

"Until we get some clarity on the regulations and the risk, who is going to want to come in and buy them right now? They may still be on the hook," said Flynn.

Short-term takeover or not, the company still faces a long battle to prove that cleaning up the worst oil slick in US history and meeting Washington's demands will not prove fatal. But those demands are mounting.

The Obama administration wants BP to pay not just for cleaning up the more than 40 million gallons of oil that have spewed into the Gulf of Mexico so far, but also the costs of a halt in offshore drilling and other economic damage to the region.

According to the American Petroleum Institute - a lobby group for oil firms - the drilling moratorium alone will cost 42,600 jobs with 165 to 330 million dollars in lost wages.

Meanwhile Congress is considering eliminating the cap on BP's liabilities, which currently stands at 75 million - a limit the company has said it will ignore.

In Florida - not the worst hit state -- Attorney General Bill McCollum has demanded BP deposit "no less than 2.5 billion dollars into an interest-earning escrow account" to help pay for the impact of the spill.

BP has tried to stress it has enough cash to pay any potential damages. But investors are still nervous about the ever-increasing political cost.

In a sign of the severity of the firm's problems, Christine Tiscareno, an equities analyst at Standard & Poor's, on Thursday scrapped her recommendation that clients buy BP stock, despite it trading "well below" its true worth.

"They can afford to clean this up, they can afford many billions in damages and they should be able to survive," said Flynn.

"What they might not be able to survive is the government."

Indeed the White House further ratcheted up the pressure on BP on Thursday, summoning its chairman Carl-Henric Svanberg to a meeting with Obama next Wednesday, the same week that chief executive Tony Hayward is due to testify before members of the US Congress on BP's role in the disaster.

First Published: Jun 11, 2010 11:50 IST