Shell Dismisses BP Takeover Talks as Mere ‘Speculation’

One of the world’s biggest oil companies seems to have sprung a leak – no, not in one of its tankers, in its deal room. But the information that seeped out has been called into question.

On Wednesday, The Wall Street Journal reported that UK-based multinational oil giant Shell was in early-stage talks to acquire British rival BP, citing “people familiar with the matter.” It’s unknown if the newspaper’s tip was shucked from inside Shell’s yellow pecten scallop logo, beamed from BP’s green and yellow sunburst or sourced from a knowledgeable insider elsewhere. But one thing’s for certain: Shell denies it’s happening. “No talks are taking place,” a spokesperson told The Daily Upside.

What’s In a Leak?

According to the Journal’s report, Shell and BP reps are in active discussions, and BP was said to be considering the prospect of being taken over “carefully.” BP’s $82 billion market cap, which is less than half of Shell’s $210 billion, means if a deal ever materialized, its value would likely exceed that of the $83 billion ExxonMobil merger in 1999, factoring in the likely acquisition premium.

The possibility of a Shell-BP merger has fascinated markets and analysts since the 1990s. Speculation has intensified in recent years as BP stumbled out of the Deepwater Horizon disaster in 2010 into a bad bet on Russia’s Rosneft that went south after the country invaded Ukraine and a series of underwhelming renewables ventures. A megamerger of this sort would, theoretically, be of interest to Shell because it would vault it closer to ExxonMobil’s $468 billion market cap and likely beyond Chevron’s $248 billion. Bloomberg reported that Shell was studying the idea of acquiring its UK rival in May, something Alphavalue analysts figured would probably involve a cash-and-stock payment.

The Journal’s report on Wednesday made clear that a tie-up is “far from certain,” according to the paper’s sources. Whether the reported talks are merely “further market speculation,” as the Shell spokesperson characterized them, or not, investors took both the news and Shell’s denial seriously:

• BP shares initially rose as much as 10% following the Journal’s report Wednesday, but after Shell’s rebuff, they reversed course, narrowing their gains to 1.8%. Shell shares were down 0.8%.
• “As we have said many times before, we are sharply focused on capturing the value in Shell through continuing to focus on performance, discipline and simplification,” Shell’s spokesperson added. BP did not reply to a request for comment. Even without a Shell-BP deal, the energy sector still has a major pending tie-up, with Chevron’s $53 billion acquisition of Hess awaiting the outcome of a legal challenge by Exxon over a Guyana oil field in which both it and Hess have stakes.

Doubling Down: BP has pledged to boost its oil and gas production and trim its renewable investments after a run of underwhelming returns, with activist investor Elliott Management, which owns 5% of the company, leading a shareholder push for improvement. Shell has made similar pledges to focus on more profitable oil operations but ironically, Elliott took a major short position against the company in March.