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Wednesday, February 18, 2015
Rumors are making the rounds that ExxonMobil is ready to increase in size with a major acquisition; however, most analysts and industry pundits agree that in the case of ExxonMobil bigger is not the way to be better. As a super major ExxonMobil’s performance should be much better than it is, but over the last several years results delivered have not been on par with historical results or what investors have expected.
Which firm is rumored to be ExxonMobil’s target? BP is the other part of the rumor equation. The $127 billion market cap company could cost ExxonMobil between $175-$200 billion in stock, but what would the US firm gain? Analysts say not much that it does not already have. Since BP’s Deepwater Horizon debacle it has been selling off non-core parts of its assets, leaving it with assets very similar to those held by ExxonMobil, and while it provides operational synergies it will not add any new excitement to the larger firm’s portfolio or generate much excitement for shareholders.
This is not the first time rumors circled over an ExxonMobil buy of BP; it made the rounds more than once last year but the legal liabilities hanging over BP were a bit of a wet blanket and still are. There is also BP’s stake in Rosneft which provides an estimated 33% of BP’s oil production;it could prove to be a problem given the current US-Russian relations. Given the tensions between the West and Russia and the fact that the US has restricted long-term financing to Rosneft, putting their joint exploration campaign in the Kara Sea on hold, it is unlikely Rosneft would want to hand ExxonMobil hundreds of millions of dollars per year in oil earnings and dividend income if the US firm was to buy BP.
The BP buy detractors have their reasons as is evident above, but the real problem analysts have with the ExxonMobil/BP rumor seems to be that ExxonMobil has all the assets it needs at this time and more; increasing in size through a takeover will not make it better. The company, according to analysts, needs to solve its current stagnation by divesting non-core assets, paying a competitive dividend, and forming a MLP (master limited partnership) would be a good start, analysts say.
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