BP, Amoco in $50bn deal

British Petroleum last month announced a $50bn takeover of Amoco of the USA in a deal which will create an oil major of the size to rival Royal Dutch Shell and Exxon. The move will create a new company, BP-Amoco, with a market capitalization of $110bn and 100 000 employees.

BP-Amoco will be the world`s third largest listed oil company. The merger comes at a time when crude oil prices have slumped and are unlikely to recover for some time. Around 6000 jobs are likely to be shed, and savings of $2bn by the end of 2000 are envisaged. The agreed equity split will be 60 per cent to BP shareholders and 40 per cent to Amoco`s.

Significantly, the deal gives BP a strong foothold in the global natural gas market for the first time. BP-Amoco will be the largest natural gas producer in the UK, rivalling Centrica, the demerged arm of British Gas. Both BP and Amoco have limited interests in power generation, but this could now grow and expand into retail sales, particularly in the UK ahead of deregulation in the retail market.

The merger is good news for Amoco, whose performance has been lagging recently. However, its strong domestic refining and marketing operations will play a large part in the new company.

BP-Amoco will be run from London, with Chicago as the group`s centre for its US operations. BP chief executive Sir John Browne will run the new company while Amoco chairman, Larry Fuller, will become co-chairman until he retires in 2000.

Some analysts believe that this deal could spark further mergers in the oil industry as the oil price slump continues to eat into profits.