Standard Oil Issues Report Valuing It Above BP’s $70 Bid
Raising the prospect of a billion-dollar family spat, investment bankers hired by Standard Oil Co. said Monday that the company’s stock is worth at least $85 a share instead of the $70 offered last month by controlling partner British Petroleum.
A report commissioned by Standard Oil’s board said the $7.4-billion offer by British Petroleum for 45% of Standard’s common stock was based on incorrect and outdated information, which understates the value of Standard’s refinery operations and several other holdings.
The report by First Boston Corp. prompted Standard Oil to postpone its annual shareholders meeting to May 28 and appeared to increase the likelihood of a struggle between the two closely linked companies.
Interpretations Differ
But British Petroleum, which already owns 55% of Cleveland-based Standard Oil, replied it has “no intention” of boosting its offer. And officials at Standard Oil stressed that the report was First Boston’s and said the recommendation won’t necessarily be embraced by Standard’s board.
The dispute boiled down to different interpretations by two investment banking firms: First Boston representing Standard Oil’s interests, and Goldman, Sachs for BP, with each placing the most advantageous price tag on Standard Oil from the standpoint of each client.
A special committee of Standard’s board expects to report to the full board on “the fairness of the offer” on April 14. The committee said the two investment banking firms would trade information in the meantime and that it hopes the exchange will “provide a basis for meaningful negotiations.”
The prospect of Standard shareholders collecting $85 a share put the company’s stock on the most active list of the New York Stock Exchange, where the price climbed 62.5 cents and closed at $71.25 a share. It was $65 before BP made its offer on March 26.
BP’s decision to seek ownership of the Standard shares it doesn’t already own has been called a sign that the British energy concern has become optimistic that oil prices will rise, but First Boston’s report said the $70-per-share offer has already been overtaken by events.
The firm said the prices of most oil stocks have risen in recent weeks on similar bullish sentiments and that Standard shares would be trading in the $70 range today even without a buyout offer from BP.
That judgment neglected to mention that the rise in price of oil stocks generally has partly been attributed to the BP offer itself and its implicitly positive reading of the oil market and the ability of OPEC to hold to its recent agreement fixing prices and cutting oil output.
In a letter to the special board committee, First Boston also said:
- Goldman, Sachs’ report to BP understated the operating income of the refining and marketing business of the company by $218 million, effectively lowering the valuation of the company by $1.3 billion. Among other things, the report was based on an outdated corporate plan.
- BP’s estimate of Standard’s oil reserves in the Prudhoe Bay field in Alaska is 431 million barrels too low.
- Standard’s coal, metals and related operations are worth as much as $500 million more than BP claimed.
These and other discrepancies would justify a price of $85, First Boston said, without even considering such “dramatic upside potential” as the possibility of a major oil discovery in Alaska, the tapping of Standard’s known natural gas reserves in that state and recent evidence that the Prudhoe Bay field half owned by Standard has more recoverable oil than initially was thought.
