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BP takeover fears as shares plunge

Hoplite

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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.
 

jujuman13

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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.

Nationalization means the Government has to recompense BP for appropriating BP assets in the US.

I doubt that that task will be as easy as was the theft of GM by Obama.
 

Simon W. Moon

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Nationalizing implies that the govt would run it, which seems pointless and prob'ly counter productive.

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.
 

apdst

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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.

I would rather see them remain intact and generating revenue. If BP is nationalized and those assets are depleted, guess who foots the bill then. Not to mention the effect it would have on the economy for the government to over-excercise it's power to nationalize a company that big.
 

jujuman13

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Nationalizing implies that the govt would run it, which seems pointless and prob'ly counter productive.

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.

I sincerely doubt that they will go that way because the ongoing cost of cleaning up the Gulf and the polluted shoreline will likely be of greater value than siezure and sale of BP assets within the US. A continuing leak of this size meaans that there will likely be no bottom vegetation for around 7 to 10 years, it also means that oil will contue to spoil US beaches for many years, I am not entirely sure how long before sea creatures will begin to once again populate the waters but certainly it will not be for a number of years.
BP will have to dig deep to find the money to continue remedial efforts, it will not be for a year or two, more likely anything up to around 12 to 20 years.
 

PeteEU

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I sincerely doubt that they will go that way because the ongoing cost of cleaning up the Gulf and the polluted shoreline will likely be of greater value than siezure and sale of BP assets within the US. A continuing leak of this size meaans that there will likely be no bottom vegetation for around 7 to 10 years, it also means that oil will contue to spoil US beaches for many years, I am not entirely sure how long before sea creatures will begin to once again populate the waters but certainly it will not be for a number of years.
BP will have to dig deep to find the money to continue remedial efforts, it will not be for a year or two, more likely anything up to around 12 to 20 years.

Dont worry, as long as Exxon has not paid in full for what it did with Valdez, then BP wont either. Plus no one has that much money to buy BP and good luck getting credit for it.
 

American

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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.

Why, because you like the government owning everything?
 

Hoplite

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Why, because you like the government owning everything?
Because I think nationalization of key industries is a cornerstone of economic stability
 

RightinNYC

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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.
 

upsideguy

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The "theft of GM"? I thought people wanted it to die and the government just to get out of the way? What you people come up with next? Please make up your mind and be consistent.

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.
 

upsideguy

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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.
 

upsideguy

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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?
 

RightinNYC

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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.
 

upsideguy

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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/206703-was-the-gm-bailout-a-success
 
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NolaMan

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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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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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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.
 

NolaMan

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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.
 

RightinNYC

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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.
 

pragmatic

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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.



.
 

upsideguy

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Now you are really going off into never/never land. You implied that the $60B was spent money... gone, lost forever. I countered with not only is that money going to come back, but the government stands to make a nice profit. Are you that binary that you need to win the argument of the profit to prove your point that it was all lost? You can accept my post as "gee, the $60B spent on GM/Chrysler was really only ____ B (fill in your own small number) and be happy, or accept the fact that it may be profitable. I don't care. But believing the government pissed away $60B on the auto industry is just incorrect.

Ok, to answer you specific points and walk through this, without getting to goofy about the details as my main point is this was a near break-even to good deal for the US stands:


Let's see....

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

"....GM shares would need to have a market value of $69 billion in order for Treasury's common shares to recoup their portion of the bailout money. Numerous analysts last month estimated GM's total market value at between $64 billion and $90 billion...."

From General Motors bailout details - Lynn Sweet

"· The U.S. Treasury is prepared to provide approximately $30.1 billion of debtor in possession financing to support GM through an expedited chapter 11 proceeding and transition the new GM through its restructuring plan. The U.S. Treasury does not anticipate providing any additional assistance to GM beyond this commitment. In exchange for funds already committed by the U.S. Treasury and the new injection of $30.1 billion, the U.S. government will receive approximately $8.8 billion in debt and preferred stock in the new GM and approximately 60% of the equity of the new GM. The U.S. Treasury will also have the right to appoint the initial directors other than those that will be selected by the VEBA and the Canadian government."

This document was the most precise that I found on the actual deal structure. Unfortunately, it was a bit prospective. The point is that the US government owns at least 60% of the equity (this was substantially confirmed with the Washington Post article. I actually found slightly higher numbers, probably with the old debt coverting to a sliver of equity but lets stick with the 60%)

OK... if analysts peg the enterprise value of GM between $64 and $90B, then the government's 60% share of that is between $38.4B and $54B. Additionally, the $7B of debt was paid back with interest in April 2010.

I did have a difficult time figuring out exactly what was invested in GM. The best I could find was $50B, including the $7B of debt. If you deduct the $7B from $50B, you have $43B remaining.... so, that places the low end of the current projected market cap in a small loss position $4.6B (not including interest earned on the debt) and the high end in a modest profit position $11B. Ok, so I rounded the investment of $40B and called it zero to $14... the actual dollar amount isn't the point. The point is that its generally break-even to a small profit. What is crazy is that you its all lost, and now quibble about the amount of the profit....

It does not include the clunker program, as that was not a GM bailout issue. That is part of the overall economic stimulus.

As for the liabilities of $65B that evaporated into thin air....wow, you really have me on my heals with that one. Its a bankruptcy!!!!! That is what happens. I am speaking specifically about the government's investment in GM, not all ills with America (yes I cited saved jobs as a collateral benefit). Most of the right wanted a GM / Chrysler bankruptcy without government help. What would that look like? My guess is the $65B evaporation would have been magnitudes larger. Chrysler at least (and maybe GM) would be gone. In 2008, wealth evaporated from everyone. There was no question that GM and Chrysler were in serious trouble, something had to be done. What the GM/Chrylser bailout attempted to do was to work with that to stabilize a very important foundation of our economy to minimize damage. It worked. Those that lost the $65B will likely more than re-coup it in continued business with two viable companies. Again, that is the way bankruptcy is suppose to work.

As to money dumped into auto industry financing arms.... I do not know that issue particularly, except that GMAC has seemingly made a nice comeback as Ally. I don't know from one vantage point you argue that none will come back (perhaps the same vantage point that $60B was lost on the auto industry). We can both research that one and argue that one another day.

Back to the point: The GM salvation deal looks like a good one for the US government.

BTW. The Rattner article in the Washington Post does not speak to recovery via IPO. In fact, he offers no support for his $40B current government value. I used that article to support the overall theme of my argument.
 
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RightinNYC

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Now you are really going off into never/never land. You implied that the $60B was spent money... gone, lost forever. I countered with not only is that money going to come back, but the government stands to make a nice profit. Are you that binary that you need to win the argument of the profit to prove your point that it was all lost? You can accept my post as "gee, the $60B spent on GM/Chrysler was really only ____ B (fill in your own small number) and be happy, or accept the fact that it may be profitable. I don't care. But believing the government pissed away $60B on the auto industry is just incorrect.

Where did I say it was gone forever? Reread my post.

I'm well aware that our money was invested and that we own a stake in the company. My point is that your sources don't exactly seem to say what you're claiming they do.

Let's see....

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

"....GM shares would need to have a market value of $69 billion in order for Treasury's common shares to recoup their portion of the bailout money. Numerous analysts last month estimated GM's total market value at between $64 billion and $90 billion...."

Again, that's a paper value, which doesn't exactly convert 1:1 to market value, especially when it will take years for the government to unwind its position. The sentence right after that quote:

But it may prove difficult for GM to reach that value. The company's peak market value was $61.3 billion in May of 1999, according to research by the Center for Research in Security Prices at the University of Chicago.

You're also ignoring the $17b that was sunk into GMAC, which is not coming back.

From General Motors bailout details - Lynn Sweet

"· The U.S. Treasury is prepared to provide approximately $30.1 billion of debtor in possession financing to support GM through an expedited chapter 11 proceeding and transition the new GM through its restructuring plan. The U.S. Treasury does not anticipate providing any additional assistance to GM beyond this commitment. In exchange for funds already committed by the U.S. Treasury and the new injection of $30.1 billion, the U.S. government will receive approximately $8.8 billion in debt and preferred stock in the new GM and approximately 60% of the equity of the new GM. The U.S. Treasury will also have the right to appoint the initial directors other than those that will be selected by the VEBA and the Canadian government."

This document was the most precise that I found on the actual deal structure. Unfortunately, it was a bit prospective. The point is that the US government owns at least 60% of the equity (this was substantially confirmed with the Washington Post article. I actually found slightly higher numbers, probably with the old debt coverting to a sliver of equity but lets stick with the 60%)

OK... if analysts peg the enterprise value of GM between $64 and $90B, then the governments portion of that is between $38.4 and $54B. Additionally, the $7B of debt was paid back with interest in April 2010.

I did have a difficult time figuring out exactly what was invested in GM. The best I could find was $50B, including the $7B of debt.

Look at your own link:

So the question is not so much whether the bailout will succeed, but how it stacks up against the alternative, which would have been to let GM go into bankruptcy without government assistance. First, we would have saved not only the $56.7 billion official price tag of the bailout, but also the $17 billion in TARP funds poured into the restructuring of GMAC (GMA), the finance arm of GM, as well as other items that may leave little change from $100 billion.

It's certainly more than $50b, however you want to look at it.

It does not include the clunker program, as that was not a GM bailout issue. That is part of the overall economic stimulus.

It was a direct subsidy to auto manufacturers.

As for the liabilities of $65B that evaporated into thin air....wow, you really have me on my heals with that one. Its a bankruptcy!!!!! That is what happens. I am speaking specifically about the government's investment in GM, not all ills with America (yes I cited saved jobs as a collateral benefit).

I'm well aware of the difference and of what happens in a bankruptcy. My point is that you don't get to pretend like the government is "making profitable investments" in the market simply because it uses its regulatory authority to force private investors to take a loss.

Back to the main issue: The GM salvaltion deal looks like a good one for the US government.

And again, I just don't think the facts support that.

If we turn a profit on this, I'll be happy as hell. I just don't really foresee it happening, once you take into account all the other factors.

The Washington Post article is a completely different analsis of this, which does not get into the whole IPO approach. In fact, Rattner does not speak at all about where the $40M comes from

And yet he was Obama's Car Czar in charge of restructuring the entire industry. What does that say?
 
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