Shell Reportedly Weighing BP Takeover Amid Stock Price Decline

Shell (SHEL) is working with advisers to evaluate a potential takeover of British oil major BP, Bloomberg News reported, citing people familiar with the matter.

The report, also cited by other media publications, said any final decision about the merger will likely depend on whether BP stock continues to slide.

BP shares have fallen nearly 27% over the past 12 months amid declining oil prices and its turnaround effort, failing to impress investors.

Activist investor Elliott Investment Management, unveiled a 5% stake in BP this year, has pushed for several strategic and executive changes.

Shell could also wait for BP to reach out first or for another suitor to make a first move, the report said, citing sources. It added that Shell's current work could help it prepare for such a scenario.

While Shell and BP were nearly equal in size for a long time, BP’s failed bet on renewables under former CEO Bernard Looney created a gap in valuation between the two London-listed oil majors.

Shell has a market capitalization of $198 billion, while BP is valued at less than half, at about $73 billion.

The report said that deliberations are in the early stages, and Shell may focus on share buybacks and bolt-on acquisitions rather than a merger.

On Friday, Shell CEO Wael Sawan said the company would keep looking at inorganic opportunities, but it needs to see a pathway towards free cash flow per share accretion in a relatively short period for any acquisitions.

The company slashed its annual investment budget to $20 billion to $22 billion and pledged to boost shareholder returns in a bid to attract investors amid increasing worries over the sector's future.

BP and Shell both reported a decline in first-quarter profits amid a fall in oil prices last week.

The report also drew some early retail chatter.

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BP’s U.S. shares have fallen 5.3% year to date (YTD) while Shell’s U.S. shares have gained 5.8%.

Also See: Oil Prices Decline After Saudi-led OPEC+ Agrees To Lift Output, Analysts Raise Oversupply Alarms

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