Why Shell’s Hands are Tied by UK Law After Denying BP Merger
A mega-merger between supermajors Shell and BP faces a major hurdle: the rigidity of U.K. takeover law. Despite a mandated denial, Shell still has levers to pull if it aims to acquire BP.
A monumental tie-up between European supermajors Shell and BP is facing a major hurdle: the rigidity of U.K. takeover law.
U.K. M&A rules, as laid out in the City Code on Takeovers and Mergers, compel companies to disclose offers and potential offers in fairness and transparency to shareholders.
In the U.K., public companies are required to keep investors informed throughout the entire courtship process. That’s not the case in the U.S., where Securities and Exchange Commission (SEC) rules typically mandate disclosure only once a deal is signed.
Rumors swirled again this week, suggesting Shell Plc may be eyeing a takeover of European rival BP Plc.
U.K-listed equities for both firms were affected June 25 by the media speculation, with BP shares rising and Shell shares falling. A Shell spokesperson denied the reports later in the day.
Then Shell followed up with a formal denial via a June 26 press release, in accordance with the rules of the U.K. City Code on Takeovers and Mergers.
Shell clarified that “it has not been actively considering making an offer for BP” and confirmed that “it has not made an approach to, and no talks have taken place with, BP with regards to a possible offer.”
The wording of Shell’s statement went beyond a simple denial, triggering specific legal obligations in the U.K.
Now bound by Rule 2.8 of the City Code, Shell cannot launch an unsolicited takeover bid for BP within the next six months, according to Tudor, Pickering, Holt & Co. analyst Jeoffrey Lambujon.
Shell must also “publicly express any change in intent or negotiations with similar formality,” he wrote in a June 26 report.
But were Shell to be seriously entertaining a takeover of BP, the company does have options.
Shell noted that Rule 2.8 of the City Code allows exceptions, including, if BP’s board agrees, a new third party makes a firm offer or BP receives specific waivers.
Under the law's Rule 9 waiver, a shareholder can also surpass 30% ownership if independent shareholders agree. A reverse takeover, which shifts control or business direction, is similarly exempt due to its strict regulatory and shareholder approval requirements.
This language gives Shell certain “escape hatches, especially if both parties wish to pursue a friendly deal structure,” Lambujon said.
But in the near term, it “fortifies yesterday’s media response” from Shell and “otherwise limits activity over the next six months.”
Analysts see industrial logic for a potential deal between Shell and BP, which was valued at nearly $80 billion on June 25. A merger would represent the largest energy transaction since the mega-merger between Exxon and Mobil in 1999.
Still, whether a deal can be signed remains uncertain, especially given potential antitrust concerns, Lambujon said.
U.S. impact
The combination of Shell and BP would have significant ramifications on their U.S. oil and gas operations.
Shell’s largest U.S. production area is the Gulf of America—formerly the Gulf of Mexico but renamed by the Trump administration this year.
Shell had 304 active operated federal offshore leases in the Gulf as of year-end 2024, according to investor filings. It has 62 offshore leases with a non-operated interest and operates 10 production hubs in the U.S. Gulf.
BP had around 280 offshore lease blocks and operates five production hubs as of year-end 2024. Last year, BP made a final investment decision to develop its sixth offshore hub, Kaskida.
A potential merger could also highlight Shell’s returning interest in U.S. shale.
But U.S. shale is still a major development area for BP. The company’s shale business, Denver-based BPX Energy, has footprints across the Permian Basin and Eagle Ford and Haynesville shales.
Data suggests BPX’s properties could fetch at least $10 billion if carved out in a BP merger. BP reported in a March investor filing that BPX has 1.5 Bboe of proved reserves; holds 0.8 million net developed acres among its total 1 million net acres; and some 1,600 gross operated wells.
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