Wednesday, August 12, 1998

British Petroleum buying Amoco for $48 billion in stock

By CLIFF EDWARDS Associated Press

CHICAGO - British Petroleum PLC is buying Amoco Corp., the fifth-largest U.S. oil company, for $48 billion in stock in what would be the largest industrial merger in history. About 6,000 jobs would be shed.

The combined company would be called BP Amoco PLC, but in the United States, BP gasoline stations would be renamed Amoco.

The deal, announced today, would rank as the fifth largest ever and surpass the $40.5 billion purchase of Chrysler Corp. by Germany's Daimler Benz announced in May as the biggest industrial marriage. It would be the largest acquisition of an American corporation by a foreign concern.

BP chief executive Sir John Browne told a news conference in London that the combined company would slash 6,000 jobs, with most of the cuts coming from operations in Cleveland and Houston.

Later, the head of BP's North American operations announced it would shutter its Cleveland headquarters, eliminating 650 jobs there and 350 jobs elsewhere in the Cleveland area.

Steve Percy, chairman and chief executive of BP America, said the cuts would be made by the middle of next year. "It's something we really regret," he said.

Browne would head the new group. Its board would be co-chaired by BP chairman Peter Sutherland and Amoco chairman Larry Fuller.

Amoco is already the biggest producer of natural gas in North America and combined with British Petroleum's production in Alaska the company would be the biggest producer of oil and gas in the United States.

BP is already the world's third largest oil company and the deal would make it a bigger rival to No. 1 Royal Dutch/Shell and Exxon Corp., the world's second biggest oil company.

"The potential for cost-cutting and improving operating efficiencies are enormous," said analyst Fadel Gheit at Fahnestock & Co. "There will be no weakness in the new company, which will have the top two international players looking over their shoulders."

Based on last year's numbers, the new BP Amoco would have annual revenues of $108 billion.

Amoco's office in Chicago would be headquarters for the group's North American refining, marketing and transportation business and its worldwide chemicals business.

The BP Amoco group would have combined oil and gas reserves equivalent to about 14.8 billion barrels, and daily production of some 3 million barrels.

The companies said cost savings from the deal would add $2 billion to annual profits by the end of 2000.

Investors pushed BP and Amoco shares higher in response to the deal. BP's New York-listed shares were up $2.06-1/4 per share at $78.06-1/4 in afternoon trading on the New York Stock Exchange. They had traded as high as $86.62-1/2 earlier in the session. Amoco's stock was up $6.18-3/4 to $47.18-3/4, off its session high of $52.12-1/2.

Amoco has been struggling recently to refocus its growth overseas, a belated effort to catch up with other American oil companies that have moved away from the maturing U.S. marketplace.

The Chicago-based company last year sold about one-third of its domestic oil and natural gas properties. For the first six months of this year, Amoco's profits fell nearly by half to $673 million.

U.S. oil company stocks have been battered this year because of overproduction by world oil producers and falling demand from important Southeast Asian countries. Amoco's stock, which was split earlier this year, had been down 12 percent over a year ago before the announcement.