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