RIL should bid to take over BP

The share price of British Petroleum, the fourth largest company in the world, has halved after causing the greatest environmental disaster in history. Its out-of-control Macondo well is spewing thousands of barrels of oil daily into the Gulf of Mexico, killing birds and sea life and ruining tourist beaches and the livelihoods of fishermen. It has been obliged to suspend dividends and put $20 billion into an escrow account from which damages will be paid.

But disaster for some means opportunity for others. Mukesh Ambani suddenly has an opportunity to take over the fourth largest company in the world. Reliance is small compared with the global oil majors. Yet the stock market has driven down BP’s market value to just $100 billion, not far above Reliance’s $80 billion.

BP is well worth taking over, despite the risk. If the disaster costs BP $20 billion in damages, this will be paid out over several years, and will be well within the capacity of a company with a net profit of $21 billion in 2009. Even if damages ultimately cost between $40 billion and $50 billion, that will be affordable if spread over five to ten years, which is likely. President Obama has no desire to drive BP into bankruptcy; he wants it to remain viable and pay the damages.

What would Dhirubhai Ambani have done had he been alive? Some regard him as simply a master manipulator, but he was also a visionary. His vision of making telephone calls cheaper than postcards was achieved. His vision of building the largest oil refinery in the world was also achieved. I think Dhirubhai would have gone all out to take over BP. This is the fourth-largest company in the world. Along with Reliance’s own sales, a BP takeover would put his company in a strong position to become world number one. That’s the sort of goal Dhirubhai would have gone for.