Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Welcome to in the City. Each week we unpack a
Speaker 2: story that's crucial to the world's financial capitals. I'm Francine
Speaker 2: Laqua and I'm alegro Strassen. And in this week's episode,
Speaker 2: the world's biggest and arguably boldest activist investor has its
Speaker 2: sights on BP. So what's in store for the energy
Speaker 2: provider and its shareholders?
Speaker 1: Fran Yeah, it's always exciting when Bloomberg breaks news that
Speaker 1: sets the agenda more widely across the UK and deed
Speaker 1: the world.
Speaker 2: Yeah, we like it when it's a bit of M
Speaker 2: and A or potential m and A, or whether it's
Speaker 2: a deals Now we had this exclusives this past weekend.
Speaker 2: Activist investor Elliott Investment Management has built up a stake,
Speaker 2: a sizable steak in the all major BP.
Speaker 1: Yeah, we're really lucky to have one of the authors
Speaker 1: of that exclusive Executive editor for the Global Deals Team,
Speaker 1: Aaron Kirshfield. Hi. Aaron, Hi, we have Lemon Chiffon Cake.
Speaker 2: Podcast, which experience you break the youth to come on
Speaker 2: the podcast, I'll be back. Welcome to the City of London,
Speaker 2: the city of.
Speaker 3: The City of London, mind the gap between the financial
Speaker 3: heart of the country.
Speaker 1: The city, the city.
Speaker 3: Welcome to in the city, clear of the door.
Speaker 1: Just stop by setting out the story that you broke.
Speaker 4: So the story we broke. It was a pretty exciting
Speaker 4: weekend for us. It actually started as I was watching
Speaker 4: my five year old daughter taking swim lessons and I
Speaker 4: thought I should use this moment to make a couple
Speaker 4: of calls on a tip that Elliott, one of the
Speaker 4: most kind of feared and aggressive activists in the world,
Speaker 4: had built a stake in BP. And to our surprise,
Speaker 4: we made a couple of calls and figured out this
Speaker 4: tip is indeed true and realized that this is a
Speaker 4: huge development. And why is that? That's because probably for
Speaker 4: the last decade that I've been covering deals, we've been
Speaker 4: talking about will BP be bought at some stage or
Speaker 4: taken over? And you know, anyone in Davos would have
Speaker 4: talked about it. Recently, it's the big topic because BP,
Speaker 4: you know, this storied oil major, is struggling big time,
Speaker 4: stocks way down. All of its rivals are doing better.
Speaker 4: So everyone is asking the question what is their future?
Speaker 4: Can they make it alone or could they become a target?
Speaker 4: So the fact that activists like Elliot would get involved
Speaker 4: could be a huge trigger for something big. So we
Speaker 4: were pretty excited this weekend when we got the story out.
Speaker 2: Erin why is it in such a vulnerable position?
Speaker 4: So BP several years ago, under their former CEO made
Speaker 4: a bet, a bet that at the time seemed quite smart,
Speaker 4: and that was that the world was away from fossil
Speaker 4: fuels towards renewables net zero. Well, fast forward, as we've
Speaker 4: seen from many of the oil majors, that is no
Speaker 4: longer the priority, and the priority the big companies like
Speaker 4: Exon Shell are actually being celebrated by their success in
Speaker 4: oil in gas, and everyone is a little bit or
Speaker 4: a little bit as an understatement, is quite down on
Speaker 4: VP because they had pivoted away so strong from oil
Speaker 4: and gas, expanded into renewables, into win into battery storages,
Speaker 4: things that were quite hot topics. But shareholders have not
Speaker 4: rewarded them for that. So now there's a bit of
Speaker 4: a you know, an important juncture for the new CEO
Speaker 4: to figure out what is the future of VP, Where
Speaker 4: do they need to pivot towards and away from So they.
Speaker 1: Had famously changed their name to Beyond Well they said
Speaker 1: they'd become beyond petroleum. Now the joke is what it's
Speaker 1: back in petroleum or back to petroleum, which she.
Speaker 4: Which you I mean, investors definitely want back to petroleum.
Speaker 4: So and I think that the big question is on
Speaker 4: the twenty the new CEO is going to unveil a
Speaker 4: new strategy and he there's the expectations are ridiculously high.
Speaker 4: They're going to be hard to meet, but everyone knows
Speaker 4: whatever they decide in terms of concrete terms, it will
Speaker 4: be a pivot away from renewables and more back to
Speaker 4: the roots oil and gas.
Speaker 1: As you say, you've been watching this for ten years,
Speaker 1: I mean naturally the BP beyond patronium. It doesn't got
Speaker 1: ba longer than that, right was it was a huge
Speaker 1: shift by the company. It wasn't just the last few
Speaker 1: years of net zero. It's been going on for a
Speaker 1: lot longer. I'm just wondering, you know, such a profound
Speaker 1: rejection twenty five years or more of a shift in
Speaker 1: the company, not just you know, a cycle.
Speaker 4: No, I think you know, the reality is whether it
Speaker 4: was carmakers, oil majors. Everyone thought the direction of travel
Speaker 4: was towards you know, net zero renewables, and you know
Speaker 4: that trend probably won't end, but the reality is right now,
Speaker 4: those who have stuck to oil and gas to call,
Speaker 4: they're the ones being reward because the appetite for that,
Speaker 4: whether it's in India, China, even the US is simply
Speaker 4: not going away. And now, obviously with the reelection of
Speaker 4: Donald Trump, whose famous slogan is Drill, Baby, Drill, those
Speaker 4: drilling and drilling more are the ones getting you know,
Speaker 4: the investor interests. So BP, like many corporates that are
Speaker 4: adjusted during to the new reality.
Speaker 2: Yeah, and to be fair, I mean I covered oil
Speaker 2: and BP for years actually, but also the former CEO
Speaker 2: that then had to step down and disgrace and they
Speaker 2: always got, you know, a hard time from either front.
Speaker 2: They were never really considered, you know that green, and
Speaker 2: I know, you know, personally, on a personal level, he
Speaker 2: was always like, well, I'm still seen as big bad
Speaker 2: oil even though we're trying to pivot, and my share
Speaker 2: price at the time didn't reflect that. And now they're
Speaker 2: too green. So I think it's probably like a tough
Speaker 2: one to put in the middle.
Speaker 3: Aaron.
Speaker 4: It's been a tough fifteen years really for them because
Speaker 4: they had obviously the deep water Horizon spell in the
Speaker 4: Gulf of Mexico, which they have now called the Gulf
Speaker 4: of America and their lated earnings release. Interestingly on a
Speaker 4: side note, and then obviously, as you mentioned, the CEO
Speaker 4: had to step down for some personal misconduct and the
Speaker 4: failed to transition to at zero. So they really are
Speaker 4: facing headwinds on a lot of fronts.
Speaker 2: So talk to us a little bit about the psychology
Speaker 2: of an activist investor. So Elliott is probably the most
Speaker 2: feared right mainly because the founder is I don't know
Speaker 2: if you call him a shark, but he's astute, he
Speaker 2: understand what he wants and he pushes hard. So what
Speaker 2: are they trying to do? I mean, they see a
Speaker 2: vulnerable company, they come in and they basically try and
Speaker 2: steer it so that the share price that they've bought
Speaker 2: goes up exactly.
Speaker 4: So Elliott, as you say, you know, probably the best
Speaker 4: known hedge activist hedge fund in the world. They look
Speaker 4: for targets that they believe are undervalued, and they believe
Speaker 4: BP is severely undervalued, and they come up with a
Speaker 4: strategy that they then pitch or push on the management
Speaker 4: to make the stocks rebound. And now you know, you
Speaker 4: can look at a long track record of their targets.
Speaker 4: That can range from everything like a breakup like Honeywell,
Speaker 4: which was just announce off weeks ago. That can be
Speaker 4: management change and a lot of people are speculating that
Speaker 4: they might push out the chairman of BP who is
Speaker 4: behind the transition to net zero. And it can be
Speaker 4: asset sales, all sorts of levers they can pull and
Speaker 4: when they pop up in the share registry, the boardrooms
Speaker 4: listen because they carry a lot of weight, They have
Speaker 4: a lot of money. They make big bets, multi billion
Speaker 4: dollar bets. And while in the US they can be
Speaker 4: more effective because they have more tools to replace the
Speaker 4: board with their own people, they still can have a
Speaker 4: lot of sway in the UK and Europe.
Speaker 1: How long have they been active? You know, it's very
Speaker 1: noisy this story now, But what are the high profile
Speaker 1: cases going back a few years because something not clearly.
Speaker 1: I've got a kind of lens of being interested in
Speaker 1: climate and so on. But if I think back a
Speaker 1: few years, you've got engine one that performs a similar deal,
Speaker 1: but from the opposite perspective. So trying to force companies
Speaker 1: to be more ESG which you know, we can all
Speaker 1: debate till the counts come home how effective it was
Speaker 1: as a category. But nonetheless that seemed to be the
Speaker 1: dominant activist investor trend three years ago. Is it just
Speaker 1: that they were noisy and high profile, but actually there
Speaker 1: were other opposing deals going on.
Speaker 4: Yeah, so I'd say Engine is a bit of a
Speaker 4: unique animal this pressure to you know, move towards ESG.
Speaker 4: But interestingly, even in the UK, just in the last
Speaker 4: few weeks, Engine and Elliott invested in the same target
Speaker 4: in the UK, Smith's Group, which is an industrial conglomerate,
Speaker 4: and Smith did announce a breakup. Now people at Smith
Speaker 4: would claim we were working on this review for months,
Speaker 4: has nothing to do with Engine and Elliott. Maybe just
Speaker 4: a coincidence, wink wink. But so now it's interesting to
Speaker 4: see Engine and Elliot's interest converge.
Speaker 1: So interesting.
Speaker 4: Yeah, so I think you know, Elliott has targeted oil
Speaker 4: and gas companies before, and in fact, yesterday they announced
Speaker 4: that they had built a huge stake two point five
Speaker 4: billion in Phillip sixty six and they are pushing for
Speaker 4: a breakup big asset sales there. And they've also built
Speaker 4: a stake in sun Core. So they've done oil and
Speaker 4: gas before, but it's never really been about we want
Speaker 4: you to become a green company. It's more about we
Speaker 4: want you to run your business more efficiently, get rid
Speaker 4: of the parts that you shouldn't keep that aren't as profitable,
Speaker 4: and really they just do the step they push for,
Speaker 4: the short term steps that will boost the stock so
Speaker 4: that they can cash out.
Speaker 2: A lot of the banks in the UK actually or
Speaker 2: some of the banks had activist investors on their bank their.
Speaker 4: Yeah, I mean HSBC had a big Barkleys. So really
Speaker 4: in Europe they target every sector. The thing is activists
Speaker 4: are or definitely more active in the US, but it's
Speaker 4: also they're kind of running out of ideas in the
Speaker 4: US to a certain extent because there's so many activists
Speaker 4: and so many companies have already been targeted. So I
Speaker 4: think the ideas in the last few years, let's look
Speaker 4: to Europe, where companies might be more vulnerable and maybe
Speaker 4: it's less competitive. We can find unique targets that others
Speaker 4: haven't already ide'd and see what changes we can push through.
Speaker 4: And we've definitely seen that for years eron.
Speaker 2: I imagine if you're a chief executive actually having a
Speaker 2: shareholder activist on your back. It's probably one of the
Speaker 2: worst things. I mean, it could make you better, but
Speaker 2: it's stressful. Do we know if they're you know, the
Speaker 2: negotiations or the talks are friendly, or do they even talk.
Speaker 2: What do we know about the bpks.
Speaker 4: We don't know much. What we do know is that
Speaker 4: BP has traditional advisors Goldman mor and Stanley Roby Warshaw
Speaker 4: that it would normally work with. The reality is BP
Speaker 4: management knew they were vulnerable, so I would be shocked
Speaker 4: if they don't have a defense plan in the cupboard
Speaker 4: already how to react if an Elliott or someone like
Speaker 4: Elliott appears. You're absolutely right, it makes boardroom CEOs nervous.
Speaker 4: But there's a catch to that theory, because interestingly CEOs
Speaker 4: sometimes have to make difficult decisions, whether that's job cuts,
Speaker 4: asset sales. Sometimes having an activist is actually a good
Speaker 4: thing because it gives you that leverage you need where
Speaker 4: you say, if we don't make these radical changes, it
Speaker 4: could be worse. So and you see the same thing
Speaker 4: for institutional investors, the ones we would consider maybe slightly
Speaker 4: or more passive or boring, and they actually might also
Speaker 4: and we even receive some calls they don't want to
Speaker 4: say it on the record saying we applaud that Elliot's
Speaker 4: there because we want BP to make changes. They're, you know,
Speaker 4: losing money on BP. They want the stock to rebound,
Speaker 4: and they're like, Elliott will provide that catalyst. That's necessary.
Speaker 2: What's the most efficient way of getting stuff done? You
Speaker 2: know you have sometimes I'm in a deals right, So
Speaker 2: if you see a vulnerable company, maybe a shell looks
Speaker 2: at BP and says I want some of their assets.
Speaker 2: You could have a short seller, you could have an
Speaker 2: activist investor, like how do you divv this up? Like
Speaker 2: who is it who gets their first or is everyone
Speaker 2: looking at similar assets.
Speaker 4: So in the case of BP, and we wrote this recently,
Speaker 4: several of the big rivals, even before Elliott showed up,
Speaker 4: before we broke that story, have been running the numbers.
Speaker 4: Everyone is sitting there waiting who makes the first move.
Speaker 4: And the interesting thing about BP is it's a really
Speaker 4: crown jewel a British corporate history. So imagine this scenario.
Speaker 4: What if one of the big Americans, whether it be
Speaker 4: Exon Chevron, and this is all theoretical, what if they
Speaker 4: made a move. Do you think the British government would
Speaker 4: sit there and let that happen. Big question mark what
Speaker 4: I could see in theory we could they do well?
Speaker 4: They have national security laws that they could try to use.
Speaker 4: But can you imagine Trump getting on the phone and saying, hey,
Speaker 4: how about our special relationship, how about the trade deal
Speaker 4: you wanted to do exactly so you better let us through.
Speaker 4: I think the more realistic scenario could be they would
Speaker 4: make a call to Shell, which is the most obvious partner,
Speaker 4: another British major that has had way better fortunes has
Speaker 4: you know, shares have gone up as BPS has gone down,
Speaker 4: and they could say, we want you to do a
Speaker 4: deal and create a true British champion, because if you
Speaker 4: combine them, you would have one of the biggest oil
Speaker 4: majors and they could, you know, really go neck and
Speaker 4: neck with the exons of the world.
Speaker 2: When you look at activists investors, are they I mean
Speaker 2: you mentioned that actually a lot of them are looking
Speaker 2: more at the UK. Is it easier to change things
Speaker 2: for a UK company, a British based company than it
Speaker 2: is for Europe.
Speaker 4: So I think UK is definitely the most attractive European market.
Speaker 4: We saw that in the data last year. I think
Speaker 4: it's a mix of Maybe some of the rules make
Speaker 4: it easier, but I think it's mostly and this this
Speaker 4: applies to overall M and A, not just activism. The
Speaker 4: UK is always well usually the most attractive and most
Speaker 4: active market, and that's because I think investors here are
Speaker 4: more receptive to M and A. You don't get government
Speaker 4: involvement as much. We all know what happens in France
Speaker 4: when you try to buy a French company. Everyone cites
Speaker 4: the famous example of don On when PEPSI was looking
Speaker 4: at don On yogurt, all of a sudden, overnight became
Speaker 4: a nationally strategic asset and the deal never happened, and everyone, yeah, yeah,
Speaker 4: is yoga is important? I won't disagree. Whereas the UK
Speaker 4: has always been more receptive to takeovers, and so I
Speaker 4: think in terms of simplicity, lack of political blow back,
Speaker 4: also some of the corporate governance rules, the UK is
Speaker 4: always the easiest target after the US, I would argue,
Speaker 4: So that's why we see a lot of activity here.
Speaker 4: And then for any government you know, as you'll know,
Speaker 4: the UK has to straddle this fine line between we
Speaker 4: want to build national champions, but we also want to
Speaker 4: be open to the world, and so blocking deals would
Speaker 4: send obviously the wrong message. And that's another reason I
Speaker 4: think why people think, if I'm going to do a deal,
Speaker 4: let's go.
Speaker 1: To the UK, a little focus on the underdog, those
Speaker 1: bits of the business that they that be people now
Speaker 1: be encouraged to sell. As the Global deals editor, do
Speaker 1: you know, I know it's not trendy. I know it's
Speaker 1: not you know, Trump compliant with drill baby drill to
Speaker 1: be thinking about you know, solar and wind. A couple
Speaker 1: of years ago, they were seen to be good bets.
Speaker 1: Of course, the return on investment is not what it
Speaker 1: is with oil and gas for now, but long term,
Speaker 1: you know, they do they do. They do have a
Speaker 1: kind of longevity to them that oil and gas does
Speaker 1: not have.
Speaker 4: Absolutely, I think, you know, ten years now, we'll be
Speaker 4: having a different conversation.
Speaker 1: And this is.
Speaker 4: Absolutely but I think for now, you know, there's a
Speaker 4: very good chance that Elliott could or demand the BP
Speaker 4: sell exactly those businesses. So they own a solar energy
Speaker 4: and battery storage business. They've built a huge ev charging network,
Speaker 4: and you know they also have a big retail business.
Speaker 4: You know, whether that be truck stops or every American
Speaker 4: knows the BP gas stations. I think you call them
Speaker 4: petrol stations over here, right, and you know they'll they'll
Speaker 4: probably press them to sell that kind of non core
Speaker 4: and really.
Speaker 1: Just someone will pick them up quite cheap.
Speaker 4: Yeah, someone could pick them up quite cheap. And I
Speaker 4: think you're absolutely right. In the short term, those renewable
Speaker 4: type assets are the ones that investors don't want BP
Speaker 4: or others to hold. But I think you know, in
Speaker 4: the long term they might regret that. But when you
Speaker 4: have Elliott knocking on your door, you're thinking more short
Speaker 4: term than long term.
Speaker 2: In the short term, who I mean, I can't ask
Speaker 2: you who's next. But do you think we'll see more
Speaker 2: activist investors come in?
Speaker 3: I do.
Speaker 4: I think we'll see more. And I think the big
Speaker 4: trend that we saw last year and that will continue
Speaker 4: this year is the push for simplification. So all these
Speaker 4: big conglomerates, let's think of Unilever, they're selling their ice
Speaker 4: cream business, Ben and Jerry's Reckitt, They're selling their home
Speaker 4: care business, all the cleaning products I love using at home.
Speaker 4: And the reality is, you know, the investors are rewarding
Speaker 4: those moves. So I've been doing this long enough to
Speaker 4: know the pendulum swings back and forth. Right now, the
Speaker 4: pendulum is swinging towards simplification focus, and that's what BEEP
Speaker 4: needs to do. But again, in five years from now,
Speaker 4: we'll be talking about how companies need to diversify, which
Speaker 4: I guess exactly, which I guess is good for business,
Speaker 4: for bankers and for m and air reporters.
Speaker 2: Erin, thank you, thanks for listening to this week's In
Speaker 2: the City from Bloomberg. This episode was hosted by me
Speaker 2: Francin Laqua with a Legro Stratton. In the City is
Speaker 2: produced by Somersaudi and Moses and damp designed by Blake Maples.
Speaker 2: Brendan Francis Newman is our executive producer. Special thanks to
Speaker 2: Aaron Kirschfield. Please subscribe, rate, and review wherever you listen
Speaker 2: to podcasts.