British Petroleum Merger with Amoco

Abstract

During 1998, BP merged with Amoco in a deal valued at $48.2 billion. At that time, it was billed as the largest oil industry merger ever. The deal was also the largest takeover of an American company by a foreign company. After the merger, BP Amoco became the largest company in Britain with more than $140 billion in market capitalization and one of the world’s top three oil majors. The merger deal was a share swap deal whereby Amoco shareholders were offered 3.97 BP shares for each share of Amoco common stock. The deal involved exchange of American depository receipts equivalent to 3.97 of its shares for each Amoco share. There were a lot of operational synergies from the deal as a result of complementary strengths. BP’s strength lays in its exploration skills, while the company was weak in the business of refining oil into products and chemicals as well as in areas of marketing and distribution. Amoco had strong marketing and distribution network. The merger consolidated the combined company’s spending on exploration which exceeded that of Exxon and Royal Dutch Shell. The combined entity obtained oil leadership position in Alaska, the Gulf of Mexico, the North Sea, and the Caspian Sea. The merger was a strategic fit as both BP and Amoco operations were purely complementary in nature. It made Amoco less sensitive to natural gas and chemicals and BP less sensitive to crude oil. Though the deal was stated as merger, in fact it had been a friendly acquisition whereby BP controlled 60% of the new merged company. The cumulative returns for BP during the 253-day merger period (−10 to +242) interval were approximately 39%.