Whitney Tilson of T2 Partners has been making the rounds in the media talking up his position in BP Plc (LSE:BP). Here’s Tilson on Fast Money late last week:
Market Folly has a great summary of Tilson’s rationale here. In short, it’s a case of being greedy while others are fearful. Tilson compares BP to the Texaco v Pennzoil litigation in the 80s. Tilson makes the point that shareholders in Texaco “weren’t harmed” when Texaco filed for bankruptcy protection following Joe Jamail’s $12 billion judgement against the company. Here’s Icahn describing the negotiations to settle the litigation:
Icahn made out like a bandit on his holding in Texaco. One wrinkle to this comparison is that BP is a British stock, and so it’s not subject to the same bankruptcy regime as Texaco. The Texaco matter also wasn’t as politically sensitive as the BP spill.
The Wall Street Journal has an interesting analysis discussing various scenarios for BP (subscription required).
Greenbackd 
I’ve never been persuaded by Tilson’s rationale for any of this investments.
Amit is right in saying that Tilson doesn’t offer any real analysis except that he is being greedy when everyone is running away.
My problem with this at the moment is that BP is profitable, but at the same time, 100% of its FCF is not for growth. How much of it is for maintenance? Include that into the equation and the attractiveness is lessened substantially.
Better ideas with other oil drillers or related companies IMHO.
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I found Tilson providing no real analysis as to why BP is a buy other than it fell a lot and it’s profitable. I mentioned in the comments of Marketfolly that if you have to buy BP, go for the bonds. At least you get better safety there. I also mentioned that you can have a 1% chance (i was low balling it) of having BP blasted into oblivion, Tilson says it’s like 10%. That’s a big risk to take on considering so much of it is event driven. One day, it can drop a ton and he already has a 5% position.
Tilson generally does better when he’s chasing Ackman and Einhorn ideas, he should stick with that MO.
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I’m pretty sure that many of the sub entities controlled by BP that are facing liability as a result of spill are able to benefit from the automatic stay and other provisions of Title 11, if not BP itself. In other words, I don’t see why shareholders of this English company won’t be protected similarly to Texaco, to the extent the facts are similar enough to apply the Texaco framework.
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Having immersed myself in the writings and podcasts of Nassim Nicholas Taleb, I think that the odds of another oil spill, while low, are real. Maybe not tomorrow or next week, but, consider BP experiencing another disaster a year from now.
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