THE KREMLIN has emerged as a surprise bidder for BP’s $25 billion Russian business, setting up a dramatic showdown between President Vladimir Putin and the British oil company’s billionaire partners.
BP said last week it was selling its half of TNK-BP after “unsolicited indications of interest”. The owner of the other half is AAR, a group of four Russian tycoons. They have already tabled a bid to take out BP. Stan Polovets, chief executive of AAR, said: “We made an offer about a month ago. It was a cash bid.”
Now the four face competition from the Kremlin. It is understood Rosneftegaz, the state holding company chaired by Igor Sechin, one of Putin’s most trusted lieutenants, has also made an approach.
TNK-BP is the third-biggest oil producer in Russia. Rosneft, which the state controls, is by some distance number one, while Lukoil, the number two, is owned by Russian investors. Analysts say the Kremlin wants to entrench its oil dominance by adding TNK-BP to its stable.
For BP, the sale marks a big shift in strategy. TNK-BP provided more than a quarter of its production and 90% of its 2011 dividend.
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Its exit could lead the company in a dramatic new direction. Investors have been calling for Bob Dudley, the chief executive, to act boldly to revive BP’s share price, which has failed to recover from the Gulf of Mexico oil spill two years ago.
The company has hired Morgan Stanley, the investment bank, to advise it on the sale. Sources close to the company said Dudley has drawn up a “master plan” to invest the windfall if he sells out of Russia. Investors have suggested everything from a bold takeover to a break-up or share buyback.
A resolution is still months away. AAR has 135 days during which it has the sole right to buy out BP. Polovets said AAR had offers to finance the takeover. Finding the cash, he said, was “the least of our concerns”. He added: “We will exercise our first right of refusal.”
The oligarchs have their work cut out. Sechin was recently made chairman of Rosneftegaz, with a mandate to consolidate state control over oil and gas. BP is understood to have ruled out a partial sale. A source close to the company said: “We have no interest in being a minority investor.”
A top-20 shareholder in the British group said: “This is one step closer to showing the underlying value of BP. Shareholders have had a pretty raw deal over the past couple of years. We might be better served by a break-up of the group or a demerger.”
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BP is the third largest company in the FTSE 100, with a market value of £76 billion. The shares closed last week at 402p, down 5¼p on the week.