BP: curtains for Looney should not open wide window of opportunity

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A board of directors at any company has certain important fiduciary duties to the shareholders. One is to ensure that a clear and actionable succession plan exists, in the desk drawer, should the chief executive resign unexpectedly or even die. Occasionally, the chair must fire a chief executive.

No company should understand the need for clear chief executive succession plans better than BP. Since 2007, John Browne, Tony Hayward and Bernard Looney have all suffered defenestration. Looney left three months ago. Reports that BP will pick a successor from a shortlist that includes external candidates suggests a degree of complacency from chair Helge Lund.

The UK oil major has made quick replacements in the past. It announced Hayward’s resignation on the same day it appointed Bob Dudley in July 2010 following the Deepwater Horizon oil spill. TotalEnergies replaced Christophe de Margerie in a couple of days after his untimely death in an air crash. Patrick Pouyanné, his replacement, remains in charge nine years on.

Mooted internal candidates Murray Auchincloss, the interim chief executive, Emma Delaney and Carol Howle, are all BP lifers. External candidates, bar maybe a former BP executive such as Brian Gilvary, would surely lack an intra-company network. Fossil fuel specialists appear to have won out over low carbon candidates such as Anja-Isabel Dotzenrath.

The situation suggests Lund may not have taken succession planning seriously given Looney’s rock star status. But no matter how charismatic a boss is, a board should remember that a fatal flaw may bring them down. In this case it was Looney’s lack of frankness in disclosing past relationships with employees.

In mitigation, Auchincloss did take over Looney’s duties quickly. Shortly after, he led an investor conference in Denver.

Investors are unhappy. BP’s share price has trailed the MSCI Europe Energy index since the resignation. Rivals Shell and TotalEnergies now earn a valuation premium of 12 per cent to BP’s 3.2 times enterprise value to ebitda. A 14 per cent drop in the Brent oil prices since mid-September does not help.

Looney’s strength was his ability to front up a shift to lower carbon energy sources while keeping investors on board. Pouyanné at TotalEnergies has extolled a similar green agenda but without embroilment in other public controversies. BP needs to pick a chief executive with similar credentials — and fast.

Hip? No, sis!

“It seemed like the real thing, but I was so blind.” Blondie’s “Heart of Glass” captures the sentiments that many investors in music rights investor Hipgnosis must now be feeling.

The UK investment trust once bought rights with all the abandon of a rock band spending its advance on high living. The resulting calamities now include the board this week postponing results because it lacks confidence in a valuation of company assets.

Hipgnosis’s core claim was that music rights of the kind it purchased from artists such as Debbie Harry were critically undervalued. In a business lacking transparent market pricing, shareholders had to make do with valuations from Citrin Cooperman, a small specialist consultancy.

The dangers of this were signalled years ago by this column and FT Alphaville.

A revamped board led by Robert Naylor, the former chair of rival Round Hill Music, is leading a review of the company’s options. It says that Citrin’s valuation of Hipgnosis’s assets was “materially higher” than implied by recent music industry transactions.

The board also took a shot at the fund’s investment adviser, Hipgnosis Song Management (HSM), which is 51 per cent owned by Blackstone.

Song values have been falling. The problems of former free-handed spender Hipgnosis are one reason for this. Discount rates are another cause. These are used to calculate the current value of future cash flows generated by an asset. When they rise in line with interest rates, current values drop.

Hipgnosis’s share price reflects this, down 45 per cent since the start of 2022. Its net asset value, meanwhile, has gone up about 23 per cent. The discount to NAV of 55 per cent is at a record.

Rights investor Alchemy bought Roundhill in September at an 11 per cent discount. Hipgnosis offloaded a non-core portfolio at a 14 per cent discount to its September valuation. HSM tried to sell a larger portfolio to a separate fund owned by Blackstone at a steep 24 per cent discount, but the deal was blocked by shareholders. 

Hipgnosis has too much debt. Covenants stipulate its borrowings have to be less than 30 per cent of the NAV. To meet that requirement, Hipgnosis may have little option but to begin selling its catalogue. Once it starts, it may have to keep going. The complete windup of the fund appears increasingly inevitable.