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BP and Shell to merge?
July 9, 2007
Once again, there has been a flurry on the web in several places, some of them unexpected, about a possible BP merger with Shell. The FT has long reported that the idea of a merger was kicked around by BP in 2005, when its management was one of the most respected in the world. (FT story may require subscription.) Then, BP was riding high, and Shell was weakened by the scandal over reserves misreporting that broke in 2004.
Now, the positions are reversed. The logic of merger still applies, however, and so do the arguments against. On the pro side, there would be a lot of duplicated costs that could be saved, and perhaps a way to unlock the hidden value that some analysts have found in Shell and BP. One the con side, there are the terrifying regulatory issues in the dozens of different jurisdictions in which the two countries operate. The management challenge of integrating the two companies would also be horrendous, and a dangerous distraction from what should be their real focus now: getting their operations right and finding more oil and gas.
But perhaps even more than that, there is the quiestion of personalities. Who would end up running the company created by this supposed "friendly" merger? At BP, Tony Hayward has only just climbed to the top of the greasy pole to become chief executive. At Shell, Jeroen Van der Veer deserves longer to enjoy the rewards of having steered the company into calmer waters, and the board has given him just that. Why on earth would either of them choose to play second fiddle?
