BP woes

British Petroleum (BP) has made a huge blunder by creating the biggest oil spill in United States history. Besides this error of theirs, they made matters worse by being incapable of removing the mess they created. This is not their first mistake for they have caused many errors too in the past. For example, in 2005, BP’s Texas City oil refinery had an explosion and killed 15 workers. Another example would be in 2006 whereby a pipeline leaked spilling over two hundred thousand gallons of oil into Alaska. Such numerous errors have made the Obama administration debate over punishing the oil giant. They are looking over taking away BP’s oil licenses in America.

But what does this all imply in the financial world? Is this not it merely an environmental issue?

Sadly, no, it is not simply an environmental issue for BP. This is because BP, being a blue chip company, has sold shares to the stock exchange and with problems after problems, their share prices have been downward sloping – a steep downward fall. Why is this an issue, you ask? Well, with share prices plunging, a wealthy (or a few rich) investor can come and buy up all the shares in the market making him (or them) the dominant shareholder. If so, the initial major shareholders may lose their say in things. This is how transfer of power may happen.

This is a major problem to current shareholders as they become fearful of losing their power. So why wouldn’t the purchase more shares? This is may have various answers, but the common answer is they are unable to purchase more stock options as if they may lack liquidity (in other words cash – they may have assets like properties and vehicles but not cash).

Therefore, when problems occur in a company and causes the shares to fall, it may lead to problems for the management as the new major stockholders may plan to revamp the firm to their desires.