BP - Amoco merger

Aug 12, 1998 02:00 AM

BP and Amoco have agreed to join forces to create one of the strongest and most competitive international energy and petrochemicals groups in the world.
The 2 companies intend to unite their global operations through an agreed merger. The executive management of the new group will be headed by BP chief executive Sir John Browne and the board will be co-chaired by BP chairman Peter Sutherland and Amoco chairman Larry Fuller.
The combined enterprise, which is the largest ever industrial merger, will be called BP Amoco p.l.c. It will be headquartered in London and will be Britain's biggest company.

BP's earnings in 1997 were $ 4.6 bn and Amoco's totalled $ 2.7 bn. Combined revenues were $ 108 bn and capital employed $ 53 bn. Current combined market capitalisation of some $ 110 bn would take the united group into the world's top trio of oil majors.
Sir John Browne described the BP-Amoco link-up as "a superb alliance of equals with complementary strategic and geographical strengths which effectively creates a new super-major that can better serve our millions of customers world-wide."
In a joint statement following approval of the transaction by the boards of BP and Amoco, he and Larry Fuller said the move was expected to deliver synergies from cost-savings that would add at least $ 2 bn pre-tax a year by end-2000 to the earnings already separately targeted by the 2 companies - and possible upside beyond that.
"We are uniting 2 excellent portfolios of assets and people to create a group that will have the financial resources, scale and global reach to compete effectively in the 21st century," they said.
"International competition in the industry is already fierce and will grow more acute as new players emerge. In such a climate the best investment opportunities will go increasingly to companies that have the size and financial strength to take on those large-scale projects that offer a truly distinctive return."

The merger will be effected by the issue of new BP shares, in the form of American Depository Receipts, in exchange for Amoco common stock, with BP shareholders owning 60 % and Amoco shareholders owning 40 % of the combined group. The board of BP Amoco will comprise 13 directors from BP, of whom 6 will be executive directors, and 9 directors from Amoco, of whom 2 will be executive directors.
Sir John Browne will be CEO of BP Amoco. He will also be chairman of the management committee and Larry Fuller deputy chairman. The 2 will co-chair the transition team responsible for integrating the operations of the new group.
BP deputy CEO Rodney Chase and Amoco president Bill Lowrie will be deputy CEOs and presidents of BP Amoco. Mr Chase will have responsibility for exploration & production and Mr Lowrie for refining and marketing, and chemicals. BP chief financial officer John Buchanan will be CFO. As co- chairman of the new group, Mr Fuller will remain an executive director until his retirement in the first half of 2000.

The world-wide headquarters of the BP Amoco group will be in London. Amoco's head office in Chicago will be headquarters for the group's North American refining, marketing and transportation business and, in due course, the world-wide chemicals business.
Exploration and production operations for the Western Hemisphere will be managed from Houston, Texas, where both BP and Amoco currently have offices. The Amoco brand will be extended over time to all BP's retail gasoline and convenience store outlets in the US. Retail sites elsewhere in the world will continue to carry the BP brand.
The initial synergies of $ 2 bn from the transaction are expected to come from a mix of reductions in staff in areas of overlap, more focused exploration, streamlining of business processes, improved procurement and rationalisation where operations are duplicated.

The BP Amoco group will have combined reserves of around 14.8 bn barrels of oil and gas equivalent and daily production of some 3 mm barrels. It will have prime positions in established major oil and gas provinces of the world, including the North Sea and North America. It will be the largest producer of oil and gas in the US, with output from Alaska, the Gulf of Mexico and the Lower 48 states. Amoco is already the biggest gas producer in the US and Canada.
It will have key positions and enhanced opportunities for access to new acreage in regions expected to supply a growing share of global energy demand in the 21st century. These include Algeria, Angola, Argentina, Australia, Azerbaijan, Bolivia, Canada, Colombia, Egypt, Kazakhstan, Kuwait, Norway, Oman, Russia and Siberia, Trinidad, the UAE and Venezuela.

Combining the chemicals operations of BP and Amoco will create a business with revenues of some $ 13 bn that marries the strengths of BP in Europe and Amoco in the US, and provides a powerful platform for expansion in Asia where both companies already have significant investments.
The new chemicals business will be one of the world's largest petrochemicals companies, with leading positions in 7 core products -- acetic acid, acrylonitrile, aromatics, purified terephthalic acid (PTA), alpha-olefins, purified isophthalic acid (PIA) and polypropylene -- and a portfolio of key proprietary technologies.
Both BP and Amoco have significant investments in solar energy and share strong records and reputations for sound operating practices, and environmental and social responsibility.

Concluding their joint statement on the new group, Sir John Browne and Larry Fuller said: "Through this transaction, we are creating an energy business for the new millennium, a business that has the first-class people, the financial resources and the leading-edge technology to supply our millions of customers world-wide with cleaner, premium-quality products at competitive prices.
"The managements of BP and Amoco already have a shared financial philosophy. The targets our companies have previously set are very similar -- powerful annual earnings growth, a strongly-competitive return on capital, and dividends growing in line with underlying earnings. This transaction gives us the financial strength, flexibility and global reach to pursue growth opportunities that will underpin those targets and to extend them over the longer term."

Subject to shareholder approval and regulatory consents, the conclusion of the merger is targeted for the end of the year. Investment bank advisers are J P Morgan for BP and Morgan Stanley for Amoco.

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