Brandjack News

By Quentin Langley

A year on from the Gulf of Mexico crisis, BP is still in trouble. JPMorgan Cazenove reckons that BP’s assets are worth $245 billion. The market capitalisation of the group is only $145 billion. BP’s reputation is currently a $100 billion drag on the value of the company. In principle a takeover could be launched offering substantial premium on the current share price and still make a very healthy profit.

Of course, a takeover bid might not succeed. The share price is set by the willingness of a relatively small number of shareholders to sell. Imagine it as a Dutch auction, in which you keep raising your bid until someone sells. The price you pay, therefore, is set by the shareholder most willing to sell – the one who values the company the least. Any takeover therefore requires a premium price, and only the market can tell how high the premium would need to be to get 51% of the shareholders to sell.

A takeover bid for BP could work in a number of ways. It could be simply be another management team believing it could run largely the same company better, perhaps with a different name.

It could be a major competitor – such as Shell or Exxon – looking to take over the bulk of BP’s business. To clear regulatory hurdles, such a bid would have to involve some asset disposal in some markets where the combined market share would be higher than regulators would allow.

A third option would be an express breakup bid. This would involve someone buying the company with a view to selling off the assets fairly promptly. The ‘downstream’ assets – refining and retail – would have to be sold with some deference to competition laws around the world. The ‘upstream’ – exploration and production – is already part of a widely fractured and highly competitive market, with huge nationalised businesses and many smaller public companies, all of which are largely anonymous. The well known downstream companies such as BP, Shell and Exxon are significant players in the upstream market, but they are not the largest.

There are inevitable controversies and risks in the upstream market, and not just the environmental risks that BP encountered in the Gulf. Shell was, for many years, criticised for its relationship with the Nigerian military dictatorship. While Nigeria is now a democracy there remain many oil rich countries with appalling human rights records. Upstream companies that also have a retail presence are subject to retail boycotts if they make strategic errors in their upstream business.

But in the days of brandjacking, upstream only companies are no longer immune from consumer or environmental campaign. The Greenpeace campaigns against Sinar Mas and APP have focussed on picking off major customers with high profile downstream brands, such as Nestlé, Burger King, Unilever and Mattel. The current Ken & Barbie campaign is really aimed at a largely anonymous Indonesian pulp and paper company.

So any break up between the upstream and downstream arms of BP might not secure the benefits some commentators imagine.

BP’s mishandling of the Gulf of Mexico crisis combined with the twin brandjackings from Greenpeace and Josh Simpson has left the BP name very badly damaged. The current management is going to have to articulate a plan for dealing with this, or a takeover bid is likely to follow.