BP shakes up its leadership … again

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0:17Good morning from the Financial Times. Today is Wednesday, May 27th, and this is your FT News Briefing. Iran is criticizing the U.S. for recent strikes, And BP is going through yet another shakeup. Plus, international companies are loving UK mid-caps. We'll tell you why. I'm Mark Filippino, and here's the news you need to start your day.

0:52Iran has accused the U.S. of, quote, flagrant violations of the ceasefire they agreed to in early April. This comes after American forces on Monday carried out airstrikes against Iranian missile launchers and boats. But despite this flare-up, back-channel talks continued. Iran's top negotiators returned to Tehran late yesterday after two days of talks in Doha. The two countries are trying to finalize an agreement that would extend a ceasefire by 60 days and reopen the Strait of Hormuz. The deal would also lay the foundation for negotiations on Iran's nuclear program. The cost of oil jumped yesterday, with Brent crude up a little bit more than 3.5%.

1:35BP has removed its chair, Albert Manifold. The UK oil major cited serious concerns about his conduct. This is the latest blow to BP, which has suffered years of strategic and boardroom upheaval. I'm joined now by the FT's energy correspondent, Verity Radcliffe, to discuss this. Hi, Verity. Hi. So, Verity, do we know why Manifold was removed? Well, the company put out a short statement that gave very broad reasons. But just the tone of the statement gave MarketWatch some idea that this was quite a serious issue that he'd been pulled up on. There were quite a few frustrations when it comes to how Manifold was dealing with the business.

2:15He was acting, some say, more as an executive chair. He was expecting to control a lot more of what the company was doing in terms of its operations. He was quite pushy, quite, some might say, bullying in trying to dictate what the company was trying to achieve and how they were going to go about doing it. He was seen as this change operator, which was desperately needed by the company at the time where he came in. But they perhaps didn't anticipate just how divisive this figure was going to be within the company. Now, we should mention that Manifold told the FT that BP's decision to remove him came, quote, out of the blue, and that he needed time to reflect before commenting further.

2:53Verity, it's probably important to understand the backdrop here, right? Because if you look at the broader context, there have been quite a few management shakeups at BP over the past couple of years. Exactly, that's right. This is an ongoing issue. They've had sort of these turbulent years since 2020 when they decided to shift over to their core business of oil and gas again. I mean, the whole sector really has done this about face from going, talking about becoming an all round energy company, shifting over to net zero and pushing the green agenda to coming back round again to developing more upstream oil and gas.

3:31For BP, it's had the most pronounced U-turn and it's really suffered in sort of writing its operations and putting them back on the right track. There's been a lot of upheaval, as you say, holding on to chairs of the company and CEOs seems to have been very difficult. They haven't had that stability and continuity for a while now. And this isn't even getting into former CEO Bernard Looney's removal a few years back when he failed to disclose the extent of past personal relationships with company employees. Verity, just out of curiosity, how have shareholders reacted to the news of Manifold's removal?

4:12It's hard to tell because really they've got the same information we do, at least initially with the statement that was coming through. And for them, they wanted more clarity over what exactly had gone on to bring about his exits. But I think immediately they were raised eyebrows, they were rolled eyes, because this is something that shareholders have been through before. It's a frustrating development for them. So I think now shareholders just want stability and clarity. So Verity, what's next for BP? Can it turn things around? What's at the top of their priority list? Well, this is the big question for shareholders.

4:51They'll be wanting to see what kind of a chair comes into the role next. Will they share the same agenda as Manifold? Will they be aligned with the CEO who definitely is pushing the development of upstream and downstream oil and gas and has separated them into those two business segments, which has pleased shareholders so far. But there is still this big question of where BP goes next. And they've had to deal with such turbulence over the past few years, so many different CEOs, not just on this one main question, but they've run into all sorts of issues with the management of this company. And everybody, I think now, is looking to see how they will steady the ship.

5:31Verity Radcliffe is the FT's energy correspondent in the UK. Thanks, Verity. Thanks very much.

5:42The European Central Bank is laying the groundwork for an interest rate rise when it meets in a few weeks. ECB board member Isabel Schnabel told Reuters yesterday that she can no longer look past the energy shock caused by the Iran war. Schnabel said, quote, I think a rate hike in June will be needed. And ECB chief economist Philip Lane told FT owner Nikkei that a scenario where it can ignore energy price increases is becoming, quote, less likely. Investors are pricing in two quarter point rate rises this year. It would bring Eurozone interest rates to two and a half percent, the highest level since last March.

6:17Both Lane and Schnabel warned that inflation pressures are higher than the ECB expected when it published its last forecasts this March. Lane said that the central bank will probably revise its inflation forecast upwards at its next meeting on June 11th.

6:38There's been a revival in bids for mid-sized companies in the UK, and it's got us wondering, what does this tell us about the health of the market and the potential of the UK's up-and-coming businesses? The FT's Jen Hughes has been looking into this question, and she joins me now. Hi, Jen. Hey there. So can you give us a few examples of mid-sized companies in the UK that are weighing up offers, and what's made them appealing targets for acquisition? Well, there's been two that sort of caught our eye. First was for Tate & Lyle, the ingredients group. Everyone thinks of that one as a sugar company, but it's not these days.

7:11They've had a£2.7 billion approach, and this is from a fellow ingredients company called Ingredient, which is a US mid-cap and sort of in the same industry. Now, they're in talks at the moment. The second was Spire Healthcare. It's a private hospital operator, and someone's approached it with second largest shareholder, offering almost a billion pounds. They've yet to make a firm offer, but that one looks like quite a positive development as well. Got it. So how does activity in the mid-cap market compare to, say, bigger companies that are listed on the main FTSE 100? Well, mid-caps are always an interesting space because they're companies on their way down.

7:51You might say Tate & Lyle wants a FTSE 100 company as one of those, and those on their way up, the up-and-coming companies, the next big blue chips. So for M &A, though, for mergers and acquisitions, mid-cap is really the engine of that market. They're easier for other companies to buy, to digest, attracted to private equity as well. And you often get a lot of strategic buyers in the same industry. Blue chips are the real headline deals. That's like the multi, multi, multi-billion, billion-pound deals. But the mid-caps are what keeps that market going. So what kind of valuation is being put on UK mid-cap?

8:29companies. And I guess, you know, how does this pricing compare to what's been happening in the U.S. mid-cap market? Well, the problem for the U.K. mid-caps is that that sort of sector is often much more domestic, whereas blue chips are much more international. So the problem is that the U.K. has had quite a few years now of very lackluster productivity growth, not particularly great economic growth, and a lot of political grumbling about all of this. So they've suffered from that sort of backdrop and their valuations have come down. At the same time, U.S. mid-caps, for example, have been doing much better.

9:05So their share prices have been rising, which makes the U.K. look an attractive market if there's a sort of a confident U.S. mid-cap out there that wants to come fishing. So what's your takeaway about this revival of the interest in U.K. medium-sized companies? I like to take it as a good sign for the market. I mean, there will be people who worry about overseas companies and investors picking off the choice bits. But I think an alternative way of looking at it is that London is an international capital market still. There's a lot of good companies here. If this sort of buying interest becomes more widespread and valuations rise generally, it won't be quite so cheap.

9:44But it will be a signal that it's still a good, vibrant market. And hopefully other companies will come and join them here. Jen Hughes is a Lex columnist for the FT. Thanks, Jen. Thank you.

10:01Just a reminder that if you are like us and you can't get enough of UK mid-cap talk, do me a favor, leave a review of our show or tell a friend about us. It really helps spread the word about the briefing. Thanks so much.

10:18You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

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