Two interesting articles about BP came out yesterday. In a startling statement, Ken Feinberg who is in charge of the $20 billion BP compensation fund, stated that the fund would reduce BP's liabilites. Many observers thought that BP was foolish for agreeing to the escrow fund as it would make BP liable for at least $20 billion without even a fight in court.
"those people who accept final settlements from the fund, will likely be required to give up their right to sue BP. “You’ll waive your right to sue,” Feinberg said. “That’s only fair.” “It’s a way for BP to avoid lawsuits in the end,” Feinberg said. “And it’s a way for a claimant voluntarily to get a check now. You don’t have to litigate for years – with some uncertainty about whether you’d win – and you don’t have to pay a lawyer thirty percent.”
This is very good news for BP, as their liability could be far higher than $20 billion for gulf coast residents.
Another interesting article was Whitney Tilson's full bullish case on BP finally presented. I think this is a gutsy move by Tilson, but I think he is making the right call. While his main points differ from mine, I am overall bullish on the stock. That being said there is no margin of safety here, and BP represents less than 2% of my equity holdings.
Tilson deals with the follow questions:
Question 1: How big is the spill today and how bad could it get? How much could the clean-up cost, and what might legal liabilities be – and, critically, over what time period might BP have to pay? Are there any relevant precedents?
Question 2: How profitable is BP? What do its balance sheet and free cash flows look like? Does BP have the liquidity to handle this crisis?
Question 3: How much might future profits be impacted? What would be the impact of a permanent ban on offshore drilling in the Gulf of Mexico? How tarnished are BP’s brand and reputation, and what might be the impact of this?
Question 4: What if BP cuts its dividend? If need be, could it raise cash in other ways?
Question 5: Regardless of how cheap BP’s stock is, is it immoral to try to profit from owning it, in light of the company’s bad behavior?
I have embeded the full twelve page document in scribd. For best viewing click on full screen and the zoomin button.
Disclosure: Long BP
Also check out:
- Whitney Tilson Undervalued Stocks
- Whitney Tilson Top Growth Companies
- Whitney Tilson High Yield stocks, and
- Stocks that Whitney Tilson keeps buying
About the author:
Jacob WolinskyMy investment ideas have been inspired by many of value investors including Benjamin Graham, Charles Royce, John Neff, Joel Greenblatt, Peter Lynch, Seth Klarman,Martin Whitman and Bruce Greenwald. .I live with my wife and daughter in Monsey, NY. I can be contacted jacobwolinsky(AT)gmail.com and my blog is www.valuewalk.com