Britain's warning to potential suitors of BP is a sign of the oil major's vulnerability to a takeover bid and that a more politically palatable tie-up with Royal Dutch Shell no longer seems to be an option, banking and industry sources said.

Despite championing a laissez-faire policy towards takeover deals, Britain has always had a special interest in BP, dating back to the creation of the company via an unusual government investment master-minded by Winston Churchill.

But in the past when the company has looked vulnerable, there was always the prospect that Anglo-British peer Shell could act as a "white knight" and agree to a merger deal that would preserve British interests.

With Shell now tied up with a $70 billion takeover of BG, that seems much less likely, prompting the outgoing British government to break cover and say it would oppose any bid for BP.

"Everyone is thinking that Shell is probably out of the ... game for a while. So inevitably, it makes BP more vulnerable as you don't have Shell as a white knight anymore," said a top oil investment banker on condition of anonymity.

Industry sources say the government's stance is more than just political posturing, with opinion polls deadlocked ahead of a May 7 election.

Rather, it is a response to speculation that Shell's move for BG could be the start of a wave of industry consolidation similar to the one at the end of the 1990s -- during another oil price decline.

Rumours of bids for BP from U.S. rivals ExxonMobil and Chevron, as well as Shell, have moved the company's stock at least three times over the past year.

FLEXING MUSCLES

Five years ago, Shell did work on a rescue bid, when BP was struggling to plug oil gushing from its Macondo well in the U.S. Gulf. BP was going through a leadership crisis; a weak pound dragged the dollar value of the firm down to as low as $80 billion; and the price of credit default swaps on BP bonds showed that even its solvency was in question.

"It wasn't so much that we wanted to buy, more we thought the British government might ask us to step in," Peter Voser, Shell's chief executive at the time, told Reuters in 2013.

BP, formerly British Petroleum, is still struggling with U.S. spill liabilities and is weakened by its huge exposure to Russia, though its finances are much stronger than five years ago and its market value is 60 percent higher at $131 billion.

"I think any government will be very serious about not allowing BP to be bought," said another major investment banker.

But with its open-door policy on takeovers, Britain on paper has little power to prevent a bid for BP.

"The UK has no real legislation in place to allow the government to invoke some legal basis to prohibit a takeover," a London-based legal adviser to the oil industry said.

"The government has very little formal power to block a bid. The decision is for the shareholders of BP and for the board to recommend what is good for the company," he added.

Still, London has flexed its muscles in recent months.

Earlier in April, it ordered Russian oligarch Mikhail Fridman to sell his North Sea assets -- its first such order in the sector.

Last year, many politicians also expressed opposition to U.S. drugmaker Pfizer's bid for Anglo-Dutch rival AstraZeneca, though the deal fell apart before the strength of their feeling could be put to the test.

Ed Miliband, leader of the main opposition Labour party, wrote to Prime Minister David Cameron a year ago saying he was concerned about the bid and shared a commitment to the UK retaining its leading global role in pharmaceuticals business.

On Monday, Miliband said he had not seen the BP reports, but added: "You know that we've set out quite clearly our attitude to these issues which is we do need to take particular care about strategically important companies and what happens to them."

Source: www.reuters.com

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