Could North Sea giant BP be a takeover target this year?

Low valuations for listed companies leave some vulnerable to takeover, one of Britain’s biggest fund managers, M&G, has warned.

It highlighted energy giant BP, which has its North Sea headquarters in Aberdeen, as an example.

The FTSE 100 has been hitting record highs lately.

But Michael Stiasny, head of UK equities at M&G Investments, said many of the index’s component companies were trading at lower values than their peers around the world.

We would not be shocked to see a big name in the oil & gas or mining sectors subject to a bid, with companies like BP trading at a significant discount to their US peers.”

Michael Stiasny, M&G Investments

As such, they make attractive bid targets, he said, adding: “Historically, low valuations of UK companies, alongside currency weakness, have created potentially attractive takeover targets. We may, therefore, see high-profile companies leave UK indices.

“We would not be shocked to see a big name in the oil & gas or mining sectors subject to a bid, with companies like BP trading at a significant discount to their US peers, even after a strong year of performance.”

Might BP get swallowed up by a bigger fish in 2023? Image: Shutterstock

There were 49 bids for London-listed firms last year, according to analysis from investment platform AJ Bell. In 2021, there were 82 offers.

Analysts have pointed out that, with the pound weakening in value, and lower than it was before the Brexit referendum in 2016, the price of some UK companies will have fallen for foreign bidders.

Bargain prices

Garry White, chief investment commentator at wealth-management firm Charles Stanley, said UK firms were likely to become more attractive to buyers this year.

Mr White added: “Quality British companies are trading at bargain prices on a global basis.

“With a recovery coming closer into view, they will become more attractive.

BP’s Clair Ridge development west of Shetland. Image: BP

“Mid-cap companies in the FTSE 250 with international operations – and businesses that could act as bolt-on acquisitions for a larger predator – look like the ideal prey for international buyers.

“The very significant currency advantage, low valuations and the prospect of green economic shoots emerging sets the stage nicely for a significant pick-up in mergers and acquisitions.

“British companies offer ‘bargain basement’ opportunities for the right buyer.”

Global trends and events close to home will shape Scottish M&A in 2023