Kuwait buys BP stock like `marshmallows': an unwelcome suitor?

A large measure of historical irony, cushioned by the old-fashioned art of British compromise, is now part of the latest wave of stock-buying and takeover bids in British oil companies. Over the past two months, the Kuwait Investment Office (KIO), the foreign investment arm of the Kuwaiti Ministry of Finance, has amassed nearly 19 percent of the stock of British Petroleum (BP), the world's third-largest oil company. Oil analysts predict the Kuwaitis will increase their holdings to 25 percent, and their current stake in BP could approach 1 billion ($1.8 billion).

BP, together with Gulf Oil, discovered the first oil in Kuwait in 1938. The two companies held equal shares in the then Kuwait Oil Company until 1974. Then, the Kuwaiti government acquired 60 percent of the company for $112 million (in 1974 dollars).

At the end of 1975, the remaining 40 percent was bought by the Kuwaiti government for $50.5 million. In March 1976, Abdel Mutaleb al-Kazimi, Kuwait's oil minister at the time, announced a tripling of the country's oil reserves, now estimated at 90 to 110 billion barrels.

The ironic twist came last November, when the British government's biggest share issue ever, the sale of its remaining 31.5 percent stake in BP, initially valued at 7.5 billion ($13.5 billion), flopped because of the worldwide plunge in stock markets. This left most of the issue in the hands of underwriters, so the Bank of England stepped in to guarantee a floor price of 70 pence for the partly paid-for stock, hoping to save the issue.

The offer closed Jan. 6 and, thanks partly to the Kuwaitis, the bank had to buy back only about 1.8 percent of the issue. The Bank of England said the British government had realized 5.4 billion from the BP sale. ``The Kuwaitis saved the [British] government's neck,'' one London oilman said.

The increasing Kuwaiti stake in BP, however, prompted speculation that KIO might be interested in some form of management control or even takeover of the company. This idea was dismissed by Humphrey Harrison, an oil analyst at London-based Paribas Capital Markets, who said that such a move was not in KIO's style and would meet with considerable political opposition in Britain or outright government veto. KIO simply saw BP as a good investment. ``If you like marshmallows, you don't buy one, you buy several,'' he said.

This view was supported by Jeremy Elden, an oil analyst at London stockbrokers Philips & Drew, who said the KIO purchase of BP stock could not be compared to KIO's ventures in Spain. In that country, KIO bought shares in Union Explosives R'io Tinta, Spain's second-largest company. KIO then tried to restructure the fertilizer, oil refining, and explosives manufacturing company, which sparked off a still-unresolved controversy. ``You only reorganize companies which are badly managed, and BP is a well-run company,'' Mr. Elden said.

In the meantime, BP has announced a bid for Britoil, a Glasgow-based independent oil company and Scotland's largest company. It was formed five years ago when the exploration and production interests of the state-owned British National Oil Corporation were privatized. At the time, this 549 million ($988 million) share issue flopped because of the sudden oil price drop.

Britoil has also been courted by California-based Atlantic Richfield (Arco). Arco has announced a plan to build a 49.9 percent stake in Britoil by purchasing shares and swapping assets for more shares. Britoil holds some of the best acreage in the United Kingdom sector of the North Sea, a region experiencing a strong revival of activity because of major discoveries over the last year.

When Britoil shares were floated in 1982, the British Treasury maintained a ``golden share'' in the company expiring in 1988, an effective control of the company board which was not backed up by stock. While this golden share does not protect the company from takeover, the government could stall company operations if an unwanted predator tried to acquire Britoil, Mr. Harrison said.

But ``it seems strange that a government would step in against the wishes of a major shareholder,'' a BP spokesman said. Analysts have suggested, however, that the golden share could be used to stop a foreign predator, such as Arco, from restructuring the company.

The BP spokesman denied reports that his company had suggested to the Treasury that the golden share could be transferred to BP to protect it from foreign predators, such as KIO. ``The golden share is not transferable,'' Harrison said.

But the Treasury issued a statement that it had been assured by KIO that Kuwait was only interested in a long-term investment in BP. London oil men say that this implies a Treasury warning to KIO that any other status for them on BP's share register is unacceptable.

Still, the KIO-BP-Britoil episode increases Kuwait's share in the UK North Sea. Through its subsidiary Santa Fe, acquired in 1981, the state-owned Kuwait Petroleum Corporation has shares in three major new oil developments in the North Sea, where its net oil reserves are conservatively estimated at 94 million barrels.

Oil analysts have commented on the added irony of Kuwait's public statements that non-OPEC oil producers, particularly the UK, should cut back on their oil production to prop up prices, while at the same time Kuwait contributes to that non-OPEC oil production.