Things are hotting up over what's to be done with BP's 50% stake in the TNK-BP JV, with reports on September 26 claiming that AAR, which owns the other half of the company, is preparing an all cash offer.
"It's clear by now that BP isn't going to consider a bid for 25%," a person close to the Russian shareholders said, according to the Financial Times. "We plan to make a bid for the entire 50% stake. We are just in the beginning of the process."
The news comes after state-owned oil major - and Igor Sechin's plaything - Rosneft offered the British company a cash-and-shares deal for the stake. That deal would hand the British-based energy giant a 12.5% stake in Rosneft and between $10bn-$20bn in cash.
One week ago, BP CEO Robert Dudley met with Russian President Vladimir Putin, with BP Chairman Carl-Henrik Svanberg and Sechin also present. The main topic of the meeting was resurrecting a major tie-up between Rosneft and BP, after AAR managed to scupper a $16bn deal last year. The plan reportedly has Putin's backing.
Under the latest deal structure, after selling its stake in TNK-BP to Rosneft, BP would then spend some of the cash on purchasing Rosneft shares from the state. Rosneft is reportedly seeking $15bn in loans to finance its part of the deal. However, under the terms of the TNK-BP JV shareholder agreement, AAR has first dibs on the BP stake. The British company has to give its Russian partner 90-days to engage in "good faith" negotiations. This period is due to expire on October 17, according to reports.
Until now AAR was thought to have offered $7bn-$10bn for half of BP's stake in TNK-BP (i.e. 25% of the company). This would leave BP in the JV alongside a partner with which it has been fighting for years, but as a minority investor and in a significantly weakened position. Given that the Rosneft offer to buy the entire stake is clearly the most advantageous, BP currently has no obligation to accept the AAR offer.
However, AAR's apparent new offer for the full stake potentially stands things on their head. Due to the shareholder agreement BP will be forced to accept it if it is on a par with Rosneft's. That would, at the very least, force Sechin to improve the Rosneft deal, which would represent yet another - albeit minor - victory for AAR head Mikhail Fridman against the powerful energy Tsar.
Some analysts suggest that's an unlikely scenario due to the sheer size of the deal. "We do not believe that AAR's bid will be any better than Rosneft's offer," writes Elena Savchik from Aton in a note to investors. "The terms offered by Rosneft imply the creation of strategic alliance between it and BP and the joint development of Arctic projects - an option which is not available with AAR. Furthermore, we doubt that AAR will be able to raise enough money to beat Rosneft's price,"
However, one unnamed source told the FT that TNK-BP, rather than AAR, would "most likely" be the borrower in any buyout deal. The company's strong cash flow would mean raising funds should not be a serious problem, the person added. One analyst retorted: "Borrowing against future cash flows? That sounds like Glasgow Rangers to me."
Others suggest that neither Rosneft nor AAR would struggle to find the cash, leaving the fate of TNK-BP to the whims of political struggle once more. "This is going to be much more a political decision than a financial capacity decision," said one western banker. On the surface, that would appear to put the powerful Sechin - a long time ally of Putin - in the driving seat. However, Fridman left him with a very public bloody nose in the last fight.
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