BP is considering selling off Castrol after 25 years as its lubricant brand, pushed by an activist investor who wants the energy super major to get back to its core upstream business.
The company has seen its various business units underperform, with revenue dropping by 35%. Now Elliot Management, the company’s third-largest investor, is using its 5% stake to pressure the company to dump other parts of the business, including Castrol and the electric vehicle charging brand Pulse, and reverse course on net-zero commitments.
Bloomberg was the first news group to report last week that BP officials are weighing whether to sell Castrol. The British energy giant bought Castrol in 2000 for £4 billion. Media reported it thinks the lubes business could be sold for between £8 billion and £10 billion.
“BP’s corporate heart has always been in the upstream, and maybe now its salvation is as well,” John Sargeant, a London-based lubricants and energy consultant, told Lube Report. “One could imagine the attractions of swapping Castrol for upstream assets with a deep-pocketed Middle Eastern player. But the attractions of building such a downstream position are not as strong as they were a few years ago when suitors were pushing to buy.”
Sargeant, an ex-Castrol employee who recalled the complexity of integrating the lubricant company in the early 2000s, suggested that if a major Western player tried to buy Castrol that competition authorities would require it first to divest from lucrative markets. He also contended that the price Castrol might command if sold would be worth less to BP than the income it gleans from the unit.
“Castrol earns BP a reliable EBITDA of over $800 million a year, while $10 billion, if a deal is eventually closed, is not, on its own, transformative,” Sargeant said. “Putting Castrol up for sale would send messages Elliott might like to hear, but on its own it could actually add to demands to go further.”