Tony Blair’s Hiring Is Step One in a BP Comeback: Matthew Lynn
June 22 (Bloomberg) -- Bloomberg's Matthew Lynn talks about his latest column in which he calls for BP Plc to hire Tony Blair as chairman and merge with Russia's OAO Gazprom. He speaks with Maryam Nemazee on Bloomberg Television's "Countdown." (Source: Bloomberg)
The British oil company BP Plc certainly knows how to dig a deep hole. But does it have any idea of how to climb out of one?
BP is on the ropes. The dividend has been suspended, the share price has tanked, and there is still little sign of its catastrophic oil spill in the Gulf of Mexico getting fixed.
If the company doesn’t start fighting back soon, it won’t have a future. The three ways it should start are by hiring Tony Blair as chairman, approaching the Russian energy colossus OAO Gazprom for a merger and hiring some experienced executives from the tobacco industry to teach it what to do when you are the most unpopular organization on the planet.
There is no point in underplaying the crisis that now is swirling around BP. Last week the company abandoned its $10 billion-a-year dividend and created a $20 billion escrow fund to compensate victims of the oil spill. Its senior unsecured ratings were cut three levels to A2, the sixth-highest investment grade, from Aa2 by Moody’s Investors Service, which warned that further downgrades are possible. The share price has dropped from more than 650 pence earlier this year to around 340 pence now.
But no situation is ever beyond salvation, no matter how grim it may look. There are ways for BP to start fighting back. Here’s where it should start.
One: Hire Blair as chairman.
Anyone who watched Chief Executive Officer Tony Hayward struggle to find a voice while being skewered by Congress last week would have realized the company needs to step up its debating skills by about 1,000 percent.
Oil-Rig Ballerina
BP Chairman Carl-Henric Svanberg is about as much use as a ballerina on an oil rig. Whatever he learned while chief executive officer of Ericsson AB, the world’s largest maker of wireless phone networks, it certainly didn’t include communications. In this kind of crisis, the man is a passenger.
Who should BP call? This is essentially a political crisis, so why not a politician? Step forward another British guy called Tony -- Blair, rather than Hayward. The former British prime minister is a brilliant communicator. They love him in the U.S. He already works for JPMorgan Chase & Co. so it’s not as if he’s particularly fussy about whose payroll he joins. And he was so close to the oil giant during his premiership that the company used to be nicknamed Blair Petroleum.
Master of Wriggles
He would turn the debate around in no time. Heck, the guy managed to wriggle his way out of the Iraq war, which probably did more damage than anything that has happened in the Gulf of Mexico. If he can get us all to “move on” from that, an oil spill shouldn’t be a problem.
Two: Approach Gazprom about a merger.
It wouldn’t come as a surprise to anyone if the ambitious Russian energy giant was eyeing BP. The share price is so burnt out, and its management looks so weak, it is vulnerable to a hostile bid. The Russian company is now worth more than BP, with a market value of $125 billion compared with less than $100 billion for BP, so a takeover would hardly be difficult.
Why wait to be taken apart? Propose a merger instead. The Russian company’s vast resources in its own country make a natural fit with BP’s global expertise and distribution, as well as its own interests in Russia. BP will get a much better deal if it makes the first approach. And, hey, let that nice Vladimir Putin deal with all the politicians in Washington who want to put Gazprom-BP out of business.
If they aren’t interested, try PetroChina Co. The same logic applies. The Chinese company is huge, and surely needs to expand. Better yet, the White House will think twice about messing with a company from China. It might start dumping all those Treasuries and put the U.S. into bankruptcy.
Smoke ‘em Out
Three: Hire everyone from British American Tobacco Plc and Philip Morris International Inc. who feels like a 50 percent pay raise.
BP needs to recognize that the oil industry has gone through a seismic shift. A combination of climate change, rising oil prices, and the environmental hazards involved in extracting the stuff from harder, more dangerous places, mean it will be deeply unpopular. It is certainly in long-term decline. What does that remind you of? The tobacco industry about two decades ago.
But massive unpopularity and steady decline can be an OK place to be. For example, British American Tobacco’s share price has quadrupled in the past decade. BP’s shareholders would be pretty happy if its shares rose fourfold by 2020.
What you have to do is forget about being liked, and forget about growth, and focus on the bottom line. Ship in everyone from Big Tobacco who wants a big pay rise -- and we’ll assume they are not working in the tobacco business for anything other than the paycheck -- and get them to teach you exactly how it’s done.
Those are all radical changes of direction. But BP needs to recognize that it is drowning right now. It needs to get a grip, make some bold changes, and get on top of this crisis before it’s too late.
(Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: Matthew Lynn in London at matthewlynn@bloomberg.net
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