BP and Amoco Merge to Create World's Third-Largest Oil Company

Strategic Insights -

British Petroleum Co. plc (BP), Europe's second-largest oil company, has agreed to purchase U.S. major Amoco Corp. for $48 billion in stock, creating the world's third-largest oil company with a combined market capitalization of $110 billion. The merger will bring together BP's international presence with Amoco's significant U.S. operations, creating a dominant force in the global energy market. BP will manage the new company, BP Amoco plc, with John Browne as CEO and chairman of the management committee.

Key Takeaways:

  • The merger creates the world's third-largest oil company, with a combined market capitalization of $110 billion.
  • BP will hold 60% of the common stock, with Amoco holding 40%.
  • The deal establishes a third "super major" in the oil industry, challenging Shell and Exxon for control of worldwide energy markets.
  • The combined company will have combined earnings of over $7 billion and revenues of about $108 billion in 1997.
  • The merged company will have a combined oil equivalent reserve of 14.8 billion barrels, with oil accounting for 63% of reserves.
  • The deal creates a dominant force in petrochemicals, with substantial base markets in the U.S. and Europe, and targeted expansion in Asia.
  • BP Amoco expects to realize $2 billion in annual cost savings from the transaction by 2000.
  • The merger will lead to the elimination of around 6,000 jobs, with around 1,000 jobs likely to be cut at BP's Cleveland, Ohio, offices.
  • The combined company will have a significant presence in Latin American natural gas markets, Russia, and North Africa.

Statistics:

  • $110 billion: Combined market capitalization of BP Amoco plc.
  • 60%: BP's holding of the common stock.
  • $48 billion: Price of the deal in stock.
  • $50/share: Price per share of Amoco stock.
  • 3.97: Ratio of BP ordinary shares to Amoco shares.
  • 14.8 billion bbl: Combined oil equivalent reserves at the end of 1997.
  • 63%: Percentage of reserves accounted for by oil.
  • 2.9 million boe/d: Combined production in 1997.
  • 1.252 million boe/d: Combined U.S. production in 1997.
  • 1.42 million b/d: U.S. refining capacity.
  • 14%: Percentage of U.S. gasoline retail share east of the Rockies.
  • 6,000: Number of jobs likely to be cut from the combined payroll.
  • 100,000: Combined payroll of BP and Amoco.
  • 1,000: Number of jobs likely to be cut at BP's Cleveland, Ohio, offices.

Sources:

  • BP and Amoco merger announcement
  • 1997 annual reports of BP and Amoco
  • Comments from analysts Kate Warne, Bruce Lanni, and Rosario Ilacqua