Exxon-BP Acquisition Talks Resurface, Deal Unlikely

BP Plc’s shares surged the most this year after a London-based newspaper reported on rumors that Exxon Mobil Corp. sounded out major shareholders over a potential takeover.

While a bid for BP cannot be ruled out, reports about Exxon’s interest have been around for years and analysts from Macquarie Capital Ltd. to Canaccord Genuity said a deal was unlikely, Bloomberg reported.

“The report about Exxon and BP seems to be just a rumor because there doesn’t appear to be an obvious strategic fit,” said Anish Kapadia, a senior research analyst at Tudor, Pickering, Holt & Co International LLP. “It would create a company potentially too big and complex to be manageable.”

Oil’s current downturn has resulted in just one big deal -- Royal Dutch Shell Plc’s $54 billion acquisition of BG Group Plc last year. Others have preferred to do smaller acquisitions as they preserve cash and protect their balance sheets. While oil prices have increased from the 12-year lows of last year, companies are still unsure if the recovery is sustainable.

Still, Texas-based Exxon has one of the strongest balance sheets in the industry and has not done a deal on such a large scale since the wave of oil-major consolidation in the late 1990s. In contrast, BP has shrunk significantly since 2010 oil spill in the US Gulf of Mexico forced it to set aside more than $54 billion for compensation and penalties.

With almost no debt and billions of dollars of shares repurchased over the past decade, Exxon has the financial power for almost any conceivable transaction.

However, marrying the Texan company’s famously buttoned-down engineers with BP’s internal culture could be difficult.

“I don’t see what the point would be of Exxon acquiring the company,” said Iain Reid, an analyst at Macquarie in London. “There’s nothing unique about BP that Exxon can’t get something similar by just buying single assets.”

Such a combination could also be too big, attracting the attention of antitrust regulators around the world. The UK might object to the sale of a formerly state-owned firm. In April 2015, following Shell’s acquisition of BG Group, the British government said it would oppose any takeover of BP.