Standard Oil Gives Lukewarm Approval to Sweetened BP Offer
British Petroleum won the lukewarm support of Standard Oil’s board Tuesday with a sweetened offer for the 45% of Standard’s shares it doesn’t already own.
Standard Oil’s approval of the deal, which boosts the per-share price and adds other inducements said to raise the offer to the $74-per-share range from an initial $70, appeared to improve prospects that the transaction would go through without a long family fight.
The board of the Cleveland-based oil company, which is already 55%-owned by the British energy concern, unanimously agreed to the offer on the recommendation of a special committee it had named to review the offer, originally made March 26. Board members have agreed to tender their personal shares, the company said.
But the Standard board withheld any recommendation on how public shareholders should vote and called the offer merely “acceptable.” Investment bankers hired by Standard had maintained that the shares were worth $85 apiece.
Nonetheless, analysts--who generally described the original price as fair--said the richer offer should pave the way for approval.
BP said lawyers who had sued to block the deal have also agreed to a settlement based on the new offer.
The offer includes $71.50 per share, warrants for BP stock that company insiders valued at an effective $2 a share and an amendment giving Standard shareholders the right to keep the 70-cent regular quarterly dividend payable June 10. That would come to $74.20 a share, making the deal worth $7.85 billion, versus the initial offer of $7.4 billion.
Standard shares were the most heavily traded issue by far Tuesday as more than 7 million shares changed hands on the New York Stock Exchange. The price rose $1.25 to $73.375, and analysts expected the shares to settle in the $74 range suggested by the new offer.
Standard was trading at $65 per share when BP made its surprise proposal, a move interpreted as a sign of new confidence in world oil prices, prospects for Alaskan oil discoveries and BP’s dissatisfaction with its incomplete control over Standard Oil.
The British energy giant had already cleaned out Standard’s managerial ranks and filled them with executives from BP after disappointing financial results.
But a report by First Boston Corp., commissioned by Standard’s board, called the $70 offer far too low and said it was based on false or incomplete information. That raised the prospect of a prolonged struggle, and BP declared it had “no intention” of sweetening the offer.
Officials at both companies were concerned that the situation had parallels to the 1985 takeover by the Royal Dutch Shell Group of London and Amsterdam of the 30% of Shell Oil it didn’t already own. It took more than a year to complete the deal because of objections to the price from some shareholders.
BP is understood to be eager to complete the buyout before the British government, owner of one-third of BP, acts on its recently announced plans to sell its BP shares to the public.
Under terms explained Tuesday, BP would issue a warrant for every five shares of Standard Oil stock, exercisable before year-end 1992 at $80 a share. The warrants--which give the holder the right to buy stock at a specified price and which may be bought and sold themselves--were added to the deal “so that Standard Oil shareholders will have an opportunity to participate in future appreciation of BP’s stock price,” a joint statement by the two companies said.
Company insiders said the warrants are already trading on the “gray market” at $10 a share. That would give them a value of $2 for every share of Standard Oil.
