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(Bloomberg) — BP Plc shares jumped as much as 10% in New York after the Wall Street Journal reported that Royal Dutch Shell Plc is in early-stage talks to acquire its London-based rival.
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Talks between company representatives are active, but any terms of a potential deal couldn’t be learned and a transaction is far from certain, the newspaper reported, citing people familiar with the matter.
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BP is under intense pressure after years of under-performance and the intervention of activist shareholder Elliott Investment Management. Speculation has been growing that the embattled company would become a takeover target, and Bloomberg reported in May that Shell had been studying the merits of a deal.
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“As we have said many times before we are sharply focused on capturing the value in Shell through continuing to focus on performance, discipline and simplification,” a Shell spokesperson said in response to questions from Bloomberg.
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BP couldn’t immediately be reached for comment.
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If Shell were to acquire BP, it would be among the largest deals in European history, creating for the first time a European oil major that could challenge industry leaders Exxon Mobil Corp. and Chevron Corp. The two oil majors combined would have upstream oil and gas production of nearly 5 million barrels of oil equivalent a day and a dominant position in the global market for liquefied natural gas.
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A deal would also be costly, with some analysts predicting that Shell would have to pay a premium of about 20% to BP’s £58 billion ($79 billion) market capitalization. It could also create significant competition concerns, giving the merged company a large share of fuel retail markets in some countries.
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BP and Shell were once close rivals — with a similar size, reach and global clout — but their paths have diverged in recent years after BP moved too quickly into low-carbon energy under former Chief Executive Officer Bernard Looney.
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READ: What Went Wrong for BP? Why the Oil Major Hit Reset: QuickTake
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(Updates with share price increase in first paragraph.)
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