Shell prioritises share repurchases over BP takeover rumours

Shell issued a definitive denial on Thursday, stating it has not, and is not actively considering, a bid for BP. 

The company further noted it is now subject to UK regulations that prohibit it from bidding for BP for the next six months.

Repurchasing more beneficial

“In response to recent media speculation Shell wishes to clarify that it has not been actively considering making an offer for BP and confirms it has not made an approach to, and no talks have taken place with, BP with regards to a possible offer,” the company said in an official statement. 

On Wednesday, The Wall Street Journal reported that Shell was in discussions to acquire BP, citing unnamed sources. 

Shell's CEO, Wael Sawan, has consistently indicated that repurchasing Shell shares is a more beneficial use of capital than pursuing a bid for BP.

Shell said:

The six-month prohibition on making an offer for over 30% of BP's shares, as stipulated by the UK's Takeover Code, can be reduced.

This shortening of the ban is permissible under the regulations if a new bidder for BP comes forward or if BP itself extends an invitation for an offer, according to the regulations. 

Lagging behind

BP's strategic pivot towards renewable energy sources in 2020, while environmentally conscious, inadvertently positioned the company at a disadvantage when global oil and gas prices experienced a significant surge. 

This shift in focus led to a marked underperformance of BP's stock compared to its industry peers. 

The company's swift shift from fossil fuels to green energy (solar, wind, biofuels) left it unable to fully profit from rising commodity prices, unlike competitors who retained conventional energy interests.

This divergence in strategy resulted in a period where BP's financial returns lagged, as the market favored companies that benefited directly from the increased demand and pricing for oil and gas. 

This underscored the immediate economic consequences of a rapid energy transition in a volatile global market.

Despite persistent takeover rumors, an examination of BP's financial disclosures suggests the British energy company may not be as undervalued as its market capitalisation implies.

"Any merger would require a rewriting of the Shell investment case which we believe, at least initially, would come to the detriment of shareholder confidence," UBS equity analyst Joshua Stone was quoted in a Reuters report.