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Thread: BP takeover fears as shares plunge

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    Re: BP takeover fears as shares plunge

    It seems cash and cash flow are a more effective means of paying for the cleanup than the market cap, but your point is well taken. The cost of the Valdez incident does provide a decent reference point. This is much bigger and has far more economic consequence, but still probably comes in somewhere between $10-25B. The company has $7B in cash and a cash flow of $30B. Yes, you can always raise money against your market cap (like mortgaging your house), which I agree is $115B. So they will take in some water, but not likely sink.

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    Re: BP takeover fears as shares plunge

    Quote Originally Posted by upsideguy View Post
    It seems cash and cash flow are a more effective means of paying for the cleanup than the market cap, but your point is well taken. The cost of the Valdez incident does provide a decent reference point. This is much bigger and has far more economic consequence, but still probably comes in somewhere between $10-25B. The company has $7B in cash and a cash flow of $30B. Yes, you can always raise money against your market cap (like mortgaging your house), which I agree is $115B. So they will take in some water, but not likely sink.
    I am now hearing damage figures in the $70-80B range. Of course, Halliburton, Trans-Ocean and, it turns out, Anadarko are all in the cross-hairs on this. To the extent they can share the damage, the may survive. Its is also possible that any combination of these companies could be run out of business or have their shareholder equity evaporate from this, akin to a death penalty for the corporation.

    Can you reply to your own post, or is that like arguing with yourself?

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    Re: BP takeover fears as shares plunge

    Quote Originally Posted by upsideguy View Post
    BTW. When GM goes public later this year or early next, the will probably make the government's investment in GM one of the most profitable uses of taxpayer funds since the RTC, the 1980 bailout of Chrysler or the 1971 bailout of Lockheed. BTW, for the record, the Bush Administration executed a major bailout of the airline industry in the early 2000's. I do not remember much cry about socialism then.
    This is somewhat off topic, but what are you basing this on? I haven't heard anything that would indicate this, and given the massive amount of government investment, it's hard for me to believe. Last I knew, TARP was projecting a loss of around $60b on the auto companies.
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    Re: BP takeover fears as shares plunge

    Quote Originally Posted by RightinNYC View Post
    This is somewhat off topic, but what are you basing this on? I haven't heard anything that would indicate this, and given the massive amount of government investment, it's hard for me to believe. Last I knew, TARP was projecting a loss of around $60b on the auto companies.
    Great question!

    The government investment in GM was close to $50 billion, of which $8.1B was in the form of debt and repaid in full (with interest). The existing investment in GM is about $40B, for which the company owns 60% of the equity of the company.

    General Motors bailout details - Lynn Sweet

    Morgan Stanley and JP Morgan are discussing an IPO based upon a pre-money valuation of $64-90 billion. This would place the value of the government equity at $38.4 billion to $54 billion.

    Morgan Stanley, JPMorgan Chase reportedly in lead for GM IPO - Jun. 11, 2010

    Unfortunately, in an IPO you are only going to sell a fraction of the market cap, and some to most of those proceeds will go for working capital, so the government will be getting its money in pieces. As of right now, however, its looking at a nice profit of $0 to $14B on its investment.

    Of course, that is not money-in-the-bank as the government will have to liquidate its position over time. In order for that to happen, GM will have to perform to affirm and appreciate its IPO valuation. To the nay-sayers that said this was a waste of money and argued that the money spent lost, they are looking to wrong on this one. Yes, TARP did set aside $80B for auto industry bail-out (GM + Chrysler). While this amount was a part of the deficit, it was only truly lost to the taxpayer to the extent there would be no recovery. It looks as if all will be recovered and it will be a net benefit to the taxpayer, in the long-run.

    Perhaps making 30% on your money for 18 months deployment was not worth the risk on a pure investment basis, but it also saved lots of direct and indirect jobs, which resulted in tax revenues rather than unemployment benefits and aid to states.

    washingtonpost.com
    http://seekingalpha.com/article/2067...lout-a-success
    Last edited by upsideguy; 06-11-10 at 11:58 PM.

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    Re: BP takeover fears as shares plunge

    Quote Originally Posted by RightinNYC View Post
    BP's market cap is $115b, even after its most recent slump.

    The Ixtoc I oil spill, which was something like 2X as large, had a total cleanup cost of approx $1b back in 1979.
    Exxon Valdez, which was maybe half the size of this one, had a total cleanup cost of approx $3.8b.

    I can't see a scenario in which BP is unable to cover the costs of this cleanup with plenty to spare.
    Their costs will involve more than just the cleanup at this point it seems like. If they are found to be grossly negligent or even criminally negligent, then their cost will skyrocket. And it is all about how much cash they have on hand, more so than just their market cap. At this point, they will have a harder time getting lines of credit too in my view, which makes cash on hand even more important.

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    Re: BP takeover fears as shares plunge

    Quote Originally Posted by Hoplite View Post


    Things are not looking good for BP at the moment. Even the best case scenario for them means losing billions on top of what they've already lost.

    Frankly I do agree with the idea to nationalize BP's US assets to repay the damage done.
    What a terrible message to send to business. Anything goes wrong, and prepare to have all your assets nationalized...If I was Chevron or someone else drilling out there, I would head for the hills in a hurry.

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    Re: BP takeover fears as shares plunge

    Quote Originally Posted by Simon W. Moon View Post
    Put them on the hook to foot the bill.
    If they can't pay, handle it that way. Seize and sell assets to satisfy the debt.
    It seems to me that this would be a problem due to ex post facto issues. Maybe I'm wrong, but that's my first impression.
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    Re: BP takeover fears as shares plunge

    Quote Originally Posted by upsideguy View Post
    I am now hearing damage figures in the $70-80B range. Of course, Halliburton, Trans-Ocean and, it turns out, Anadarko are all in the cross-hairs on this. To the extent they can share the damage, the may survive. Its is also possible that any combination of these companies could be run out of business or have their shareholder equity evaporate from this, akin to a death penalty for the corporation.
    I currently hold a lot of Anadarko stock, so I have some bias here. From my research however, I think Anadarko will have zero liability from this spill. Their only downside is losing a good revenue stream, plus three other platforms in the moratorium that are now shut down. Once BP is found grossly negligant, or even criminally negligant, Anadarko will have no liability, and can turn around and sue BP for damages. Of course they are taking a hit with their credit rating, and trying to revamp a business with this looming over and a cut credit rating will be a tough road for them.

    Halliburton will have no liabilty becuase contractors working, even if for a different company, would still be fall under the liability of BP. It would have to a parts manufacturer that might have liability, assuming that can be proved, however that is losing battle for BP currently.

    Trans-Ocean actually turned a profit after the rig sank with insurance payments. I am not sure about their liability, I have not looked at that.

    BP is the one that will shoulder basically all the liability here, and not the others in my opinion, assuming a gross negligence or criminal negligence conviction, which looks almost definite.

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    Re: BP takeover fears as shares plunge

    Quote Originally Posted by upsideguy View Post
    Great question!

    The government investment in GM was close to $50 billion, of which $8.1B was in the form of debt and repaid in full (with interest). The existing investment in GM is about $40B, for which the company owns 60% of the equity of the company.

    General Motors bailout details - Lynn Sweet

    Morgan Stanley and JP Morgan are discussing an IPO based upon a pre-money valuation of $64-90 billion. This would place the value of the government equity at $38.4 billion to $54 billion.

    Morgan Stanley, JPMorgan Chase reportedly in lead for GM IPO - Jun. 11, 2010

    Unfortunately, in an IPO you are only going to sell a fraction of the market cap, and some to most of those proceeds will go for working capital, so the government will be getting its money in pieces. As of right now, however, its looking at a nice profit of $0 to $14B on its investment.

    Of course, that is not money-in-the-bank as the government will have to liquidate its position over time. In order for that to happen, GM will have to perform to affirm and appreciate its IPO valuation. To the nay-sayers that said this was a waste of money and argued that the money spent lost, they are looking to wrong on this one. Yes, TARP did set aside $80B for auto industry bail-out (GM + Chrysler). While this amount was a part of the deficit, it was only truly lost to the taxpayer to the extent there would be no recovery. It looks as if all will be recovered and it will be a net benefit to the taxpayer, in the long-run.

    Perhaps making 30% on your money for 18 months deployment was not worth the risk on a pure investment basis, but it also saved lots of direct and indirect jobs, which resulted in tax revenues rather than unemployment benefits and aid to states.

    washingtonpost.com
    Was the GM Bailout a Success? -- Seeking Alpha
    I don't see where your links are supporting your final conclusion.

    From your WaPo link:
    Calculating the value of the Treasury's holdings is straightforward because bonds of old GM, which are entitled to a sliver of equity in new GM, continue to trade. By that measure, Treasury's total potential recovery from the GM investment currently hovers around $40 billion, compared to an investment by the Obama administration of $36.1 billion. (An additional $13.4 billion of bridge financing was provided by President George W. Bush in late 2008.)
    To me, that reads like a loss of $9 billion, not a profit of $14b. It also doesn't include the $3b auto subsidy in the form of the cash for clunkers program. Next, it ignores the fact that the only way GM has even made it this far is because the government strong-armed GMs creditors, forcing them to take disproportionate losses. The $65b in liabilities that Rattner so blithely describes as "wiped off" of GMs balance sheets didn't disappear into thin air - they came out of people's pockets. Finally, it ignores the tens of billions that were dumped into the auto companies financing arms, none of which we will be getting back.

    If you want to talk about bailouts that turned profits, we should be looking at the banking industry, not the auto industry.
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    Re: BP takeover fears as shares plunge

    Personal suspicion. This was a tragic environmental event, but it will get resolved. And BP will weather the storm. They are a huge employer and a provider of a critical economic product. Efforts will be made to exploit the disaster for both political and financial gains, but hopefully the precedent will not be set that any/all corporations are just an incident away from being totally dissolved. A lot of shareholders are exposed to devastating impact along with all the other issues.



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