Drug and media company takeovers dominated this year but the next 12 months could be different thanks to falling oil prices, analysts believe, and even BP could be in play, the Irish Independent said.
In 2015, oil mergers may command a bigger share of the deal flow. Crude’s plunge to a more than five-year low has sliced valuations of oil and gas explorers. A prolonged drop in the commodity may trigger a slew of deals. Among the giants in the industry, once-improbable scenarios such as a bid for BP are now conceivable, the report said.
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Mining companies, such as Ivan Glasenberg’s Glencore, and industrial-goods makers could also seek more deals in 2015 to help boost slackening growth, the Independent said.
“M&A activity should be broader-based next year, with the addition of metals and mining, oil and gas and chemicals, ” said Wilhelm Schulz, head of M&A for Europe, the Middle East and Africa at Citi.
The deal market is going to be “as good if not better” than 2014, said John Manley, who helps oversee about $244bn as chief equity strategist for Wells Fargo Funds Management. “I don’t see why any sector is immune to it.”
Smaller oil and gas explorers with weak balance sheets are the most vulnerable to a takeover approach amid the slump in crude prices. That doesn’t preclude the possibility of an industry leader making an even bigger move, such as bidding for BP. Even with the legal morass surrounding the 2010 Gulf of Mexico spill largely behind it, the $118 billion producer is valued at one of the lowest price-earnings multiples among its peers, the Independent said,
Because its costs are higher than those of competitors such as Exxon and Royal Dutch Shell, London-based BP is already having to cut jobs in response to the bear market in oil. A merger would provide a way to further reduce expenses and expand margins. Oppenheimer’s Fadel Gheit estimates that combining any two major oil companies would generate about $10 billion of cost savings over three years, the report said.
“Demand hasn’t been terrible, ” Glencore CEO Glasenberg told investors this month. “Demand is still developing even in oil, iron ore and thermal coal. So why have prices come down? Well, we have all invested a lot and increased supply in a significant manner, ” according to Macro Insider.