2nd UPDATE: BP Shares Surge As Market Digests M&A Prospects

30th Jun 2010 14:24

(Adds details, CDS price.) By James Herron Of DOW JONES NEWSWIRES LONDON (Dow Jones)--BP PLC (BP) shares rose more than 9% in London Wednesday morning as the market reappraised the embattled company's value as a takeover target once the crisis in the Gulf of Mexico subsides, equities traders said Wednesday. "The JPMorgan note yesterday highlights the value case--not just for Exxon but by extension, for investors buying the shares down here," said one trader who did not wish to be named. JPMorgan analyst Fred Lucas said Tuesday that BP could be worth 473 pence a share to a potential buyer, such as U.S. oil giant Exxon Mobil Corp. (XOM)--a hefty premium to BP's current share price. "The market has lost sight of the intrinsic value that is resident in an asset-rich company like BP," Lucas said. BP shares later pared some of their early gains. At 1255 GMT BP was trading at 321 pence, up 18 pence, or 5.8% from Tuesday's close. BP's New York-listed shares, called American depository receipts, closed up 2.29% at $27.67 per share Tuesday. One New York-listed ADR is equivalent to six London-listed shares. At 1255 GMT, ahead of the market opening, BP ADRs were up 3.8% to $28.73. The five-year credit default swap spread on BP also moved significantly tighter Wednesday, according to data-provider Markit. At 1245 GMT, the five-year CDS was 72 basis points tighter at 535 basis points, which means it now costs an average of $535,000 a year to insure $10 million of debt issued by the company. BP's ultimate liability for the Gulf of Mexico oil spill costs is highly uncertain. The company has already agreed to pay $20 billion into an independently-administered escrow account to cover cleanup and compensation costs. The company could also face civil penalties running into tens of billions of dollars. It is also unclear whether BP's main partner in the leaking Macondo oil well, Anadarko Petroleum Corp. (APC) will cover its quarter share of the oil spill costs. Chairman and Chief Executive Jim Hackett said earlier this month that, "BP's behavior and actions likely represent gross negligence or willful misconduct," which if proven could mean its partners in the well are not liable for their share of the soaring costs. Despite this uncertainty, "we very much doubt that keen-eyed industry players have lost sight of BP's value," said Lucas. The ability to put an accurate estimate on BP's ultimate liability is the key to valuing the company today and, "who knows better how to price potential clean up costs and associated civil claims than Exxon Mobil," Lucas said. Reports casting doubt on the strength of Anadarko's case were also a positive catalyst for BP shares Wednesday, the trader said. The Financial Times reported Wednesday that Anadarko received regular updates from BP about the drilling operation aboard the Deepwater Horizon and approved many aspects of BP's design for the leaking Macondo well. Separately, the deputy chief executive of BP's Russian joint venture, TNK-BP Ltd. (TNBP.RS), said his company could be interested in acquiring assets from BP outside Russia. BP plans to sell off $10 billion of non-core exploration and production assets this year to provide a cushion against future liabilities from the Gulf of Mexico spill. Several investment banks have teams reviewing BP's asset portfolio to find the most suitable assets to sell. BP has sizeable assets in Colombia, Algeria, Australia, and South America, none of which are seen as central to the company's future strategy. BP also has minority stakes in numerous oil fields operated by other companies all over the world. -By James Herron, Dow Jones Newswires; +44 (0)20 7842 9317; [email protected] (Andrea Tryphonides, Michele Maatouk and Art Patnaude in London, Jacob Gronholt-Pedersen in Moscow, and Donna Kardos Yesalavich in New York contributed to this article.) (END) Dow Jones Newswires June 30, 2010 09:24 ET (13:24 GMT)