Shell considering potential acquisition of BP, sources claim
Shell Eyeing Possible Acquisition of Rival BP
In a potential game-changer for the oil industry, British oil titan Shell is reportedly contemplating purchasing smaller competitor BP. However, the company might wait for BP's stock price or oil prices to tumble further, as reported by financial news agency Bloomberg, citing unnamed insiders.
In recent weeks, Shell executives have held discussions regarding the feasibility and benefits of acquiring BP, according to sources close to the matter who preferred to remain anonymous. A decision would heavily depend on the trajectory of BP's stock, which has been on a downward spiral due to the ineffectiveness of its transformation plan.
Slumping BP Stock
Over the past 12 months, BP's stock has plummeted by 30.8 percent, while Shell's stock has dropped by 14.1 percent. Long-term, BP significantly lags behind its larger competitor. In the past five years, Shell has surged by over 94 percent, while BP's stock has barely gained 17 percent.
In October, BP jettisoned a 2020 strategy aimed at significantly reducing its oil production by 2030. In February, BP announced an increase in investments for oil and gas production. Activist hedge fund Elliott—recently revealed as a 5 percent stakeholder in BP—demanded more radical transformation measures.
As the discussions regarding a potential acquisition are still in the preliminary stages, Shell might also opt for share buybacks or smaller acquisitions instead of offering for BP. There are similar analyses of a BP acquisition among other leading energy companies, according to insiders.
BP currently holds a market value of £54.6 billion on the stock exchange, while Shell far surpasses it with a worth of £148.6 billion.
Key Financial Metrics and Activity
- Dividend Yield: 7.5%, indicating an income appeal despite the price drops[1].
- Q1 2025 Performance:
- Underlying RC profit: $1.4 billion[2][3].
- Operating cash flow: $2.83 billion[2].
- Dividend: Maintained at 8 cents per share with a $0.75 billion buyback[2][5].
- Trading Volume: Up by 107% to 3.21 billion shares on April 28, 2025, due to price volatility[5].
Implications of a Shell Acquisition
Though no Shell acquisition data is available, hypothetical scenarios could involve:- Regulatory Hurdles: Antitrust scrutiny given both companies' dominance in global energy markets.- Synergies: Potential cost savings from combined upstream operations and shared infrastructure.- Valuation Impact: BP’s current $26.97 billion net debt and low P/E ratio might make it an appealing acquisition target; however, Shell’s own market challenges could deter significant mergers and acquisitions.
With BP’s high free cash flow yield (16%) and discounted valuation, analysts suggest potential upside for the company, despite long-term energy transition risks persisting[1][5].
[1] Reuters, accessed via Market Watch, April 2025[2] BP group press release, 2 May 2025, accessed 3 May 2025[3] Financial Times (subscription required), 2 May 2025, accessed 3 May 2025[4] Yahoo Finance, accessed 3 May 2025[5] Bloomberg, accessed 3 May 2025
- Shell's potential acquisition of BP could face regulatory hurdles due to the companies' dominance in global energy markets.
- The feasibility of Shell acquiring BP hinges on the trajectory of BP's stock, which has been struggling due to the ineffectiveness of its transformation plan.
- Shell might opt for share buybacks or smaller acquisitions instead of offering for BP, according to insiders.
- BP's high free cash flow yield (16%) and discounted valuation suggest potential upside for the company, despite long-term energy transition risks persisting.
