TNK-BP: $27Bn? No Thanks


Where would Russia’s energy sector be without the ongoing saga that is TNK-BP?  In terms of mystery plot-lines and baffling events, the joint venture is by far the most fascinating player on the stage.  When the row over the Rosneft-BP share tie-up first hit the news, it was widely thought that Alfa-Access-Renova, the stubborn shareholders comprising the Russian half of TNK-BP, were stalling the deal in order to get a hefty buy-out offer.  And now they have: $27 billion in cash worth.  Are they interested?  Not a bit.
Stan Polovets, AAR’s chief executive, says the group’s TNK-BP investment is long-term‘ and ‘strategic, and that it has ‘no plans to exit‘.  It can’t have helped, either, that Bob Dudley made it sound as though BP’s offer was a form of hardball, the minimum that they were prepared to offer rather than a generous price: Reuters quotes him as having said, ‘We are not going to offer large amounts or significant shareholdings in BP.

Very well, then.  Deal scuppered.  But to what end, exactly?  It certainly doesn’t look as though the extension granted to negotiations on the BP-Rosneft tie-up is going to bear any fruit.  Matthew Curtin at the WSJ has some interesting analysis on the rejected offer, pondering where the venture thinks it can possibly go next.  Even if TNK-BP hangs on, shareholder relations are surely damaged enough by this point to put off even the most eager investor.  

This is the second major breakdown in three years. AAR is stuck with an unhappy partner that the joint venture counts on for managerial and technical expertise. AAR has no leverage to force BP’s exit, partial or otherwise, even less likely if the Rosneft deal collapses, given Russia’s contribution to BP’s reserves and future output.

What’s more, AAR may not get a better opportunity to exit. No other investor is likely to want to participate in a business with such an unstable relationship between the two main shareholders. That would rule out a sale of either side’s stake via an IPO; besides, it is unlikely the market could absorb a $30 billion float. That leaves BP the only realistic buyer of AAR’s stake.

Sure, Mikhail Fridman, AAR’s main shareholder, has a long and distinguished track record in extracting fabulous prices from joint-venture partners. He will no doubt hold out for a far better deal than the one currently on the table. But even a $27 billion offer looks like a financial stretch for BP. And this time, the stakes are high on both sides.