BP shares top the FTSE 100 as Elliott stake ignites breakup chatter
BP shares jumped to the top of the FTSE 100 this morning as a rumour emerged that an activist hedge fund had taken a position in the stock.
Shares in the blue-chip oil giant jumped eight per cent in early deals on the news activist hedge fund Elliott Investment Management had built a position in the company.
The stock later settled to trade higher by seven per cent.
The news of the stake emerged over the weekend, but as of yet, the size of the position has not been confirmed.
BP is one of the largest companies listed on the London Stock Exchange, and it’s one of the largest constituents of the FTSE 100 – the UK’s leading blue-chip stock index.
Shares in the oil giant have underperformed over the past year as the company has struggled for direction amid management changes. BP shares have fallen around 10 per cent over the past year, compared to a six per cent gain for its London-listed peer, Shell.
While the size of Elliott’s stake has not been disclosed, the news of its position has fueled talk of an overhaul of BP, its strategy and the company’s board of directors.
Elliott Investment Management takes on BP
Elliott Investment Management is one of the world’s most aggressive activist hedge funds. Founded by the billionaire Paul Singer, it has a long track record of successfully shaking up the companies it which it invests.
The firm recently changed its investment strategy to focus on a few smaller, more aggressive bets rather than a wide range of positions.
Last year, the hedge fund took a significant $3bn (£2.4bn) position in Suncor Energy, the Canadian integrated energy company which specializes in extracting hydrocarbons from oil sands. The position, equivalent to a near five per cent holding, helped the hedge fund ramp up pressure on Suncor Energy’s board as part of its campaign to unlock billions in value for investors.
The market seems to be betting Elliott will take the same approach with BP.
Murray Auchincloss, BP’s chief executive since September 2023, is expected to update the market tomorrow on his plans to help revitalise the energy giant’s growth. Part of the plans could include further divestments from green energy, something the group has already been working towards.
In December, BP said it would spin out its offshore wind business into a $5.8bn (£4.7bn) joint venture with Jera, Japan’s largest power utility, in what was the group’s latest sign of a retreat from renewable energy.
The new boss has also set out plans to shave $2bn (£1.6bn) from BP’s cost base by the end of the decade and has frozen external hiring.
BP’s chair, Helge Lund, could also become a target for Elliott.
“For BP, given the circumstances around the changes to its previous chief executive, we think any activist would call for a change in the chairperson at the very least,” said the RBC Europe analyst Biraj Borkhataria.
Lund has led the board since 2019.
Analysts at Jefferies also believe that any board changes could include the departure of Lund.
“Given Elliott’s track record, we believe its involvement could lead to board changes, portfolio rationalisation (with a focus on exiting low carbon assets and certain retail regions), and capital expenditure prioritisation on upstream projects,” Jefferies said.
Will Elliott try to break up BP?
Kathleen Brooks, research director at XTB, commented: “This is not the first time that an activist investor has targeted BP, Bluebell Capital Partners started to get vocal about BPs under performance last year, and it also called for heads to roll, including the chairman.
“Like Bluebell, Elliott also wants BP to ditch its plans to reduce its fossil fuel reduction plans. The difference this time is that Elliott is better known than Bluebell and has a track record of forcing through the corporate changes that it wants.
“We don’t know how big its stake is, or exactly what its plans are for BP: will it try to break the company up, or could it try to force a sale of the company?
“As mentioned, we do not think that Elliott has enough of a stake in BP yet to force a sale of the company, however, if there was a firm offer on the table for BP in the coming weeks, then the stock price could take off, in our view.”
Allen Good, director of equity research at Morningstar, said: “BP’s long-term underperfromance has previously raised the question of why no activist was involved.”
Size was likely an obstacle. It seems now that Eilliot is taking a chance on spuring change as it has with other oil and gas companies.”
There are a variety of options it could pursue including a sale, a US relocation but the most likely would be some sort of strategic change that refocused on oil and minimized low carbon as Shell has done.”