Activist hedge fund Elliott Management has built a stake in struggling UK oil major BP, according to two people with knowledge of the move.
The exact size of Elliott’s stake could not be learned but the $70bn assets under management hedge fund has adjusted its activist strategy in recent years to increase the size of its individual bets, while reducing the number of situations it focuses on.
BP’s shares have fallen nearly 9 per cent over the past year, compared with a 6.5 per cent rise for rival Shell, and investors have complained about the company’s financial underperformance, high levels of debt and lack of strategic clarity.
Speculation has been rife in the London market for several weeks that BP is vulnerable to a takeover bid or an activist shareholder.
Pressure from Elliott could push BP to refocus on its core oil and gas business after years of building up a sprawling empire of green energy projects.
One BP investor suggested the hedge fund could call for a full break-up of the company or for it to retrench from some of its weaker businesses and relist in the US.
Other activist funds have recently looked at amassing a stake in BP, but the size of the £70bn company has deterred them. One US activist that considered a move said BP’s board had been “asleep at the wheel” and had a “muddled strategy”. It added: “BP’s upstream business on its own justifies its entire market value.”
Both BP and Elliott declined to comment.
Two senior investment bankers said Shell remained the most likely suitor for BP because of the difficulties of doing an international deal of this scale. A merger between Britain’s two largest oil companies has been periodically discussed for decades.
“The question is whether Shell would want to pursue the option, which would be a huge distraction when it is already creating value from its strategy,” one of them said. Other obstacles include competition concerns over the combined company’s lubricants business and assets in the Gulf of Mexico, and political worries over the likely job losses.
However, Shell said its chief executive Wael Sawan was focused on improving the company through consistent performance, delivery and financial discipline, and that the company would rather invest in buying back its own shares than pursue large mergers or acquisitions.
It is unclear how the UK government, which has made clean energy a priority and said it would not issue any new licences for oil and gas drilling in the North Sea, would view a bid for BP from an overseas buyer.
Companies linked to BP in the past include Adnoc, Abu Dhabi’s state oil company, which now employs former BP chief executive Bernard Looney, and US oil major Chevron, which is currently pursuing a $53bn deal for smaller American rival Hess.
BP reports quarterly results on Tuesday and will update investors on its medium-term strategy on February 26.
Murray Auchincloss, the company’s chief executive, last month delayed the update and moved it from New York to London after undergoing an undisclosed medical procedure. BP also downgraded its guidance for the quarterly results in a trading update, blaming weak refining margins as it forecast that profits would be roughly $300mn lower than a year earlier.
At the same time BP said it would cut 5 per cent of its 90,000-strong workforce and reduce the number of its contractors by 3,000 as part of an effort to trim its $42bn of annual costs by $2bn. Auchincloss also said the company had “stopped or paused 30 projects since June” as it tried to simplify its business.
Analysts have marked down their consensus estimate for BP’s fourth-quarter earnings by about 35 per cent since the trading update and warned that the company was likely to reduce the $1.75bn it has pledged to spend on share buybacks.
BP last week put its huge refinery and petrochemical complex in the German city of Gelsenkirchen up for sale. BP took a $1.34bn impairment in 2023 after cutting output at the plant, which is able to process 88mn barrels of crude a year.
Last year, in an effort to move debt off its balance sheet, BP spun off its offshore wind assets into a joint venture with Japan’s Jera.
Elliott is led in the UK and Europe by Gordon Singer, the son of the firm’s founder Paul Singer. The firm has targeted companies such as UK-listed miner Anglo American and pharmaceutical group GSK.
The firm is well known as a fearsome activist investor that is willing to fight boardroom battles if it disagrees with a company’s strategic direction.
The Financial Times reported last Monday that Elliott had built an almost 5 per cent stake in UK-listed conglomerate Smiths Group, backing a plan for the company to sell or demerge two of its four units.
Elliott also scored a big win at US conglomerate Honeywell last week as the company announced plans to split on Thursday, just three months after Elliott embarked on a campaign to achieve that outcome.
Elliott’s stake in BP was first reported by Bloomberg.
Additional reporting by Jamie Smyth in New York
