BP WATCH: BP's US Shares Rise; Analyst Proposes M&A Scenarios

By Donna Kardos Yesalavich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--BP PLC's (BP) shares rose in the U.S. Tuesday as an analyst's note proposing various merger-and-acquisition scenarios for the oil giant added to speculation that BP could become an acquisition target. BP's American depositary shares were up 2.3% to $27.67 in recent trading, up 3.5% from the 14-year low the stock hit last week but still down 54% from April 20, the day the Deepwater Horizon rig exploded. There was also much greater volume in call options for BP, which are considered bullish because they convey the right to buy, than in put options, which convey the right to sell. Still, the sentiment toward BP in some other markets was less optimistic. BP's shares closed 1.7% lower in London, and the cost to insure against BP defaulting on its bonds for five years rose to $579,000 Tuesday for $10 million of coverage from $537,000 at Monday's close, according to Markit. However, that's still below the price at Friday's close of $604,000. The action came as investors focused on a note from J.P. Morgan Cazenove in London exploring various possible M&A scenarios and suggesting that a tie-up between Exxon Mobil Corp. (XOM) and BP could work nicely. In a note to clients, analyst Fred Lucas wrote, "In many respects, an accurate valuation of BP today depends less on a valuation of its assets, but more on an accurate value of its potential liabilities. Who knows better how to price potential clean up costs and associated civil claims than Exxon Mobil?" In addition, Lucas said, "We believe the economics of such a potential combination are compelling, and we question why the market is not factoring in the possibility of it ever happening." He noted that the strength of Exxon Mobil's balance sheet would give it the chance to sweeten any offers with a "significant" cash component. "When a J.P. Morgan analyst comes out and says this could be a viable acquisition target...it is a grain of positive as opposed to the avalanche of negative news," said Hank Smith, chief investment officer of equities at Haverford Investments. However, he said a near-term deal is probably unlikely, while "in the intermediate to longer term, that could be a little bit more of a possibility as you get a little more clarity." "This is a long-term slog that BP's got to go through," Smith said. "If they resumed paying a generous dividend, then you could re-evaluate whether now investors could come into this stock. But until that happens this is really just for speculators." Smith's firm had held BP shares in a dividend-yield fund, but it sold the stock in early May. -By Donna Kardos Yesalavich, Dow Jones Newswires; 212-416-2188; donna.yesalavich@dowjones.com (END) Dow Jones Newswires June 29, 2010 12:45 ET (16:45 GMT)