According to Bloomberg, Elliott Management, a well-known activist hedge fund, has acquired a stake in the struggling UK oil giant BP (BP). This move has stirred up the London market, where speculation about BP being a potential target for a takeover or significant strategic changes has been rife.
Maximize Your Portfolio with Data Driven Insights:
- Leverage the power of TipRanks' Smart Score, a data-driven tool to help you uncover top performing stocks and make informed investment decisions.
- Monitor your stock picks and compare them to top Wall Street Analysts' recommendations with Your Smart Portfolio
The exact size of Elliott’s stake remains unknown. Still, the hedge fund, which manages $70 billion in assets, has been known to increase the size of its investments while focusing on fewer companies. BP’s shares have declined over 6% in the past year, while rival Shell’s (SHEL) shares have risen by 7.63%. Investors have been vocal about BP’s financial underperformance, high debt levels, and lack of clear strategy.
Elliott’s Push for Strategic Overhaul
Elliott’s involvement could push BP to refocus on its core oil and gas business and move away from its extensive green energy projects. One BP investor suggested that Elliott might call for a complete company break-up or a reduction from weaker businesses, possibly relisting in the U.S.
Other activist funds have considered investing in BP, but its size has prevented them from following through. One U.S. activist described BP’s board as “asleep at the wheel” with a “muddled strategy,” adding that “BP’s upstream business on its own justifies its entire market value.”
However, two senior investment bankers mentioned that Shell remains the most likely suitor for BP despite the challenges of such a large international deal. A merger between the two largest oil companies has been discussed for decades, but regulatory obstacles, such as competition concerns and potential job losses, were always in the way.
Shell Is not in Any Hurry
Shell’s CEO, Wael Sawan, has stated that the company is focused on improving its performance and financial discipline rather than pursuing large mergers. The UK government’s stance on clean energy and reluctance to issue new oil and gas drilling licenses in the North Sea could also impact any potential deal.
BP will report its quarterly results on Tuesday and update investors on its medium-term strategy on February 26. The company has already announced cost-cutting measures, including a 5% reduction in its workforce and a $2 billion cut in annual costs. Since the company’s recent trading update, analysts have lowered their earnings estimates for BP’s fourth quarter by about 35%. Elliott’s reputation as an imposing activist investor suggests that significant changes could be on the horizon for BP. With the hedge fund’s stake now in play, the future of BP could see dramatic shifts, making it a compelling story for investors and industry watchers alike.
