The billionaire quartet that owns half of Anglo-Russian oil firm TNK-BP is interested in buying out BP’s entire 50 percent stake, and will make a binding all-cash offer by the middle of next month, a source familiar with the matter said yesterday.
“We will pay cash, but have not yet determined the price,” said the source, who is close to the AAR consortium that represents shareholders Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik.
AAR had said it was willing to pay US$10 billion for a 25 percent stake in TNK-BP, Russia’s third-largest oil company. BP, which put its stake up for sale in June, was not interested in that offer, sources said.
AAR expanded its bid after state oil major Rosneft said it wanted to buy BP’s stake in TNK-BP for cash and stock in a deal that could be worth more than US$20 billion.
Such a deal would require government approval and is opposed by some senior Russian officials. Under a shareholder agreement, only AAR may make an offer before a 90-day deadline — which falls in the middle of next month — that follows BP’s announcement that it planned to sell its stake. Other suitors may then strike a deal, creating the prospect of a bidding contest.
AAR would “likely” fund the deal by borrowing through TNK-BP, the source said. How much the AAR shareholders themselves might invest remains unclear. The consortium will start negotiations with banks this week.
Bankers have said that it would be possible for AAR to finance a significant portion of any purchase by leveraging up TNK-BP, which has paid out US$19 billion in dividends since BP came into the venture in 2003.
TNK-BP posted a record US$14.6 billion in earnings before interest, taxation, depreciation and amortization last year. At year-end, it had a low gearing ratio — a measure of its debt in relation to its equity — of 26 percent.
Its gross debt was US$8 billion at the end of last year, all of it unsecured and most of it long-term. That indicates, some bankers say, TNK-BP’s ability to sustain a higher debt burden to finance a possible buyout by AAR.
However, analysts say that BP is likely to prefer Rosneft as a buyer because the prospect of acquiring equity in the Russian oil major through the stake sale could serve as a “poison pill” takeover defense for the British oil firm.
BP is seen as vulnerable to a hostile bid because it faces multi-billion damages payments over the Gulf of Mexico disaster in 2010.
A strategic alliance with Rosneft would also hold out the prospect for BP of revisiting the type of upstream deal in Russia that was blocked in the courts last year by AAR.