Oil giant BP Plc, which was said to be readying defenses for potential takeover offers, has a little-known ace in the hole: a disclaimer in its Macondo spill settlement that could tack $12.6 billion onto the price tag.
A potential buyer might be forced to accelerate the payment of up to two thirds of the $18.7 billion in penalties the company agreed to pay the U.S. and several states, according to company filings. As it stands, BP has more than 15 years.
An option that gives the federal government and some states the ability to demand faster payment in a takeover effectively hands them a veto power over any deal. Together with the company’s exposure to Russia amid sanctions and the worst oil crash in decades, it amounts to a powerful deterrent to suitors, said William Arnold, a former banker and executive at Royal Dutch Shell Plc.
“This would be an important factor for those looking at possible opportunities” in many of the deal-focused war rooms that form in oil and gas down cycles, said Arnold, who teaches at Rice University in Houston. “To have to make such substantial upfront payments at a time when cash flows are down so much would make an attempt a lot more difficult.”
Bankers, lawyers and energy executives expect a wave of major deals to hit the industry as many companies struggle under the onus of oil prices that have fallen by more than half since last year.
After Shell announced in April that it planned to buy BG Group Plc for $70 billion, London-based BP was said to review strategies to ward off suitors earlier this year, according to people familiar with the matter at the time.
Geoff Morrell, a spokesman for BP, declined to comment.
The structure of its settlement of government claims tied to the 2010 spill, which poured more than 3 million barrels of crude into the Gulf of Mexico and caused the deaths of 11 workers, allows the federal government or states to demand more immediate payment “in the event of a change of control or insolvency of BP,” the company disclosed July 28.
Such demands on the part of the Justice Department in large-scale settlements aren’t unusual, as they protect the ability of the government and plaintiffs to be paid even in uncertain circumstances, said Brandon Barnes, an energy litigation analyst at Bloomberg Intelligence in Washington.
“They have become a BP creditor,” Barnes said.
The accelerator clause tucked into BP’s settlement of government pollution and spill-damage claims creates a “disincentive” for anyone looking to take over the British oil major, according to David Berg, a Houston-based lawyer who has negotiated many settlements between polluters and municipalities.
“I don’t know anyone who’d want to buy a company with a $12.6 billion hickey they’d have to pay right away,” Berg said. “It makes it harder.”