The Wall Street Journal reported yesterday that Shell (SHEL) was in early-stage talks to acquire BP (BP), a deal that could be the largest oil merger in a generation, potentially surpassing ExxonMobil’s (XOM) $83 billion formation.
With BP valued at $80 billion and Shell at over $200 billion, the combination would create a supermajor oil giant, enhancing Shell’s scale to rival Exxon and Chevron (CVX). The report, citing sources familiar with the matter, noted active but slow-moving discussions, with BP carefully weighing the approach.
However, Shell swiftly denied the claims, stating, “No talks are taking place,” and later issued a formal statement this morning, confirming no approach was made and invoking U.K. takeover rules, barring an offer for six months unless BP’s board agrees or a rival bid emerges.
BP declined to comment, though its shares surged up to 10% before moderating, reflecting market excitement.
The speculation highlights BP’s vulnerability. Its stock has underperformed, dropping 30% in the past year due to a failed green energy pivot, management turmoil, and operational setbacks.
Activist investor Elliott Management, holding over 5% of BP stock, has pushed for a strategic overhaul, amplifying takeover chatter. BP’s shift back to oil and gas, announced in February, failed to restore investor confidence, making it a prime target.
Shell, by contrast, has outperformed, focusing on profitable fossil fuel operations and share buybacks, as CEO Wael Sawan emphasized a high bar for acquisitions.
This episode signals a consolidating energy market, where scale is critical to compete with U.S. giants. Recent deals, like Exxon’s $60 billion Pioneer acquisition and Chevron’s $53 billion Hess (HES) bid, underscore this trend.
A Shell-BP merger could enhance Shell’s liquefied natural gas and Gulf of America operations, but integration challenges, cultural clashes, and regulatory scrutiny pose risks. U.K. regulators might favor Shell over foreign buyers, yet investors question the deal’s value, with analysts like Dan Coatsworth noting BP’s “messy” state could distract Shell’s management.
Shell’s denial and focus on share repurchasing suggest it prioritizes organic growth over risky megadeals. For investors, BP’s low valuation may offer upside if a bid materializes, but the deal’s uncertainty and Shell’s stance make it a speculative bet.
The energy market’s consolidation wave continues, but this deal seems unlikely now.
