We have all by now heard on the news what BP's pre-Gulf crisis financial condition and operating results were... they produce remarkable amounts of free-cash-flow and operating profits. For the prior 12 months, the news keeps reporting how British Petroleum has made approximately $16billion dollars and paid out about $10-Billion of that as a dividend. Sure, the cost of the Gulf spill cleanup is going to be a very large one, but will it really compare to the $100-billion+ in market-share that was just lost by the publicly traded stock, and the cash-flow potential this company has? Maybe, but that seems unlikely, and certainly will not add up to that much in the near-term.
So, is it time BP considers taking the company private... perhaps through a partial employee-buyout plan at the same time? The company employs nearly 100,000 people worldwide. Right now, that'd imply that on a per-employee basis, each would have to cough up not quite a million dollars for equal-shares in the private company -- obviously not likely. But, I think that a near panic-mentality of profit-taking is currently underway (I say "panic" because people seem to forget the fact that Exxon financially recovered from the Exxon Valdez incident to grow to a current market cap of nearly $300-Billion dollars). It will take a while, but BP CAN recover both its image and its value, over the long-term.
In the mean time...
Let the stock-selling panic go for a bit longer... watch the price fall to 1/3 of what it currently is (i.e., $10/share for each ADR share of BP), to where the market-cap is at roughly $30Billion dollars; then, if the board and management can somehow work such a thing, take the company private and give their (nearly 100,000) employees a chance to buy-in at this greatly reduced price and show their commitment not just to the company, but to paying for and cleaning up the damage done to the Gulf of Mexico. There is a substantial amount of buying-power among that group of employees, which could reduce the financing-related portion of taking BP private by a few Billion dollars perhaps -- I am guessing the risk-takers, and younger employees in particular, would be willing to invest heavily.
What is my reasoning behind this? Well, I expect BP Pre-Gulf-Payout-Profits (let's call that number PGPP) to slide somewhat, but not too much, due to branding-related issues, but they have so much more going on in terms of profit-generation capabilities (production, refining, solar, wind, and other things). Fact is: that oil they produce and refine WILL sell, and consumers will use it (whether they think they are or not) and it will generate profits for BP.
IF BP could achieve PGPP of a "mere" $10 Billion per year (40% less than most recent year), that would still give them plenty of free cash flow to finance a going-private maneuver while also making ongoing restitutions to the Gulf related claims and environmental cleanup efforts. Keep in mind those 100,000 employees again... they are not going to demand immediate dividends for the next few years, but can wait it out with their private "shares" for quite some time until BP's market-cap potential returns (just like Exxon's did), and then they can cash-out for a nice profit if the company is taken public again. And, even if the company was not taken public a decade down the road, profit-sharing among employees could be substantial as Gulf-payouts finally taper down and free cash-flow improves again.
Sure, there is risk even with this type of maneuver. The Gulf cleanup costs could be extreme, and chew away at cash-flow for a decade or more. And, going private is also much more complicated than I even started to discuss here... all sorts of legal issues and more, but the general *concept* should not be ignored as an option. British Petroleum COULD go private as a means of "saving itself" from bankruptcy-fears that the publicly-traded-stock pressures seem to reinforce (fears that are overblown, though fears that if left unchecked, can lead to nearly self-fulfilling pressures on BP stock). People selling BP stock short at this time better keep in mind that there are many options for BP's future that do not include bankruptcy, insolvency, or even splitting itself up and/or being bought out, etc... and, I am not the only person looking at the inherent value in this company (cash-generation = value; and, Gulf-payouts, i.e. high-costs, *will* be fully quantifiable within the next year or two I am guessing -- there is prior incidence and precedence that one can use when analyzing potential costs).
We have become such a near-term-investing society that nobody can think about years, let alone months or weeks, when it comes to stock-prices. BP will get this leak in the Gulf stopped; that seems inevitable. And, hopefully sooner rather than later. And, when that happens, their stock-price is going to adjust upward, and quickly I expect. Perhaps before then British Petroleum will figure out some other way of protecting their value -- including considering an option of taking BP private. I am a patient investor, and I'd be willing to get in on a financing deal for something like that, though I am much to insignificant of an investor to ever be considered for any part of such a thing :) I'd be willing to bet that my ROI over a 10-20 year period would out-pace any major indices, given that demand for petroleum is likely only to increase (demand from all those people screaming about how terrible the Gulf spill is - which it IS - and screaming like they have no part in creating demand for oil). On an aside: people best not wish BP "bankrupt" as that would pretty much spell only further disaster for the Gulf victims.
Now, while also thinking as I type... I really hope Obama extends that 30% tax-credit on solar, wind, and geothermal initiatives. We all really need (it seems) some really great incentives to move away from oil, lest this Gulf-spill happens again in some form or another in the future. Perhaps the 30% credit should be lifted to 50%!? More dreaming I guess.
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