Amoco
Case Study: British Petroleum-Amoco Merger (Sources: NYT, BW, WSJ)
British Petroleum announced in August 1998 that it would acquire the U.S. oil giant Amoco for $48.2 billion in stock in the largest oil industry merger ever. The deal also would be the largest takeover of a U.S. company by a foreign concern. The merger would result in a company in a position to vie with Exxon for second place behind industry leader Royal Dutch/Shell.
The deal clearly benefits both BP and Amoco. The main strength of BP is looking for, and finding, oil reserves. Yet the company is weak in the business of refining oil into products and chemicals and distributing it to consumers, operations at which Amoco excels. Amoco also possesses significant natural gas reserves and petrochemicals. The merger thus brings all these assets into a larger, far more comprehensive structure, making BP Amoco a true giant with enhanced structure.
Investors surely liked the merger deal, as both companies' stocks moved up as a result of the announcement, despite heavy losses elsewhere in global markets. Amoco shareholders will get 3.97 BP shares for each Amoco share.
Consumers in the U.S. are unlikely to feel any immediate effects of the merger. Prices at gas pumps are mostly dependent on world oil supplies, which currently are plentiful; and while consolidation of gasoline outlets may decrease retail competition, the combined exploration potential of the company eventually could result in larger supplies of crude oil.
The merger will allow the companies to consolidate their spending and efforts on exploration, which would exceed that of Exxon and Royal Dutch/Shell. In addition, the merger would allow the companies to be more competitive in regions, like the former Soviet Union, China, and Latin America, where competition has increased as companies, especially national companies, seek new sources of revenue.
The merger announcement, moreover, could set off a wave of consolidation in oil companies, not
British Petroleum announced in August 1998 that it would acquire the U.S. oil giant Amoco for $48.2 billion in stock in the largest oil industry merger ever. The deal also would be the largest takeover of a U.S. company by a foreign concern. The merger would result in a company in a position to vie with Exxon for second place behind industry leader Royal Dutch/Shell.
The deal clearly benefits both BP and Amoco. The main strength of BP is looking for, and finding, oil reserves. Yet the company is weak in the business of refining oil into products and chemicals and distributing it to consumers, operations at which Amoco excels. Amoco also possesses significant natural gas reserves and petrochemicals. The merger thus brings all these assets into a larger, far more comprehensive structure, making BP Amoco a true giant with enhanced structure.
Investors surely liked the merger deal, as both companies' stocks moved up as a result of the announcement, despite heavy losses elsewhere in global markets. Amoco shareholders will get 3.97 BP shares for each Amoco share.
Consumers in the U.S. are unlikely to feel any immediate effects of the merger. Prices at gas pumps are mostly dependent on world oil supplies, which currently are plentiful; and while consolidation of gasoline outlets may decrease retail competition, the combined exploration potential of the company eventually could result in larger supplies of crude oil.
The merger will allow the companies to consolidate their spending and efforts on exploration, which would exceed that of Exxon and Royal Dutch/Shell. In addition, the merger would allow the companies to be more competitive in regions, like the former Soviet Union, China, and Latin America, where competition has increased as companies, especially national companies, seek new sources of revenue.
The merger announcement, moreover, could set off a wave of consolidation in oil companies, not