BP Amoco assessed

David Knott
London
[email protected]

Industry watchers last week were expecting announcement of a takeover bid of some kind in the current low oil price trough, but nothing as big as the BP-Amoco deal.

British Petroleum Co. plc and Amoco Corp. shook the world with news of their merger plan. Since then, analysts have been busy assessing the potential impact of BP Amoco plc (OGJ, Aug. 17, 1998, p. 34).

Wood Mackenzie Consultants Ltd., Edinburgh, said, "The deal is the largest-ever industrial merger. It propels the combined group into the super-league of oil majors, with a clear gap forming between the new big three and the other integrated companies in terms of size."

BP Amoco will have a market capitalization of $120 billion, said Wood Mackenzie, while Exxon Corp. retains the lead at $163 billion, and Royal Dutch/Shell is not far behind at $156 billion.

The new group will have combined reserves of 14.8 billion bbl of oil equivalent, said Wood Mackenzie, second only to Shell: "The upstream operations of the two companies are complementary in terms of individual assets, with remarkably few license overlaps."

Comparisons

Merrill Lynch & Co., London, said combining BP and Amoco would provide, besides enormous cost-cutting possibilities, opportunity for growth.

Merrill Lynch's Chris Buckley said, "This transaction creates a company which, in many ways, will be ahead of Exxon. Amoco has underperformed for quite some time and was clearly a candidate for acquisition."

Merrill Lynch reckons BP Amoco can achieve cost savings promised by management of $2 billion by the end of 2000. Buckley said the potential comes through BP applying its portfolio management skills to Amoco assets.

Who's next?

Arthur D. Little Ltd., London, reckons further consolidation is inevitable as other companies vie for position in a new world of "mega- majors."

Yet the London branch of Commerzbank AG sees few benefits of scale in the merger: "Remember that Shell is the largest of the group and has about the worst recent new business record.

"Both BP and Amoco are in the process of buying back shares-hardly consistent with the thesis that they are missing out on opportunities for lack of size."

Commerzbank sees Shell as the company most threatened by BP Amoco, because it is moving too slowly as competition is intensifying.

"Shell may respond," said Commerzbank, "by buying Texaco Inc. for cash, although this would be a big change in corporate philosophy.

"However, the logic suggests that the next bid victim is the company with great assets but failing management: step forward, RD/Shell Group.

"There are now two other companies of a size to contemplate such a move, and further consolidation will create others. If Shell does not improve its performance over the next 2 years, it will become a bid target."

Meanwhile, Conoco Inc. and Elf Aquitaine are being touted as potential merger partners. Press reports also say Conoco's owner Du Pont is considering selling Conoco to Elf and buying Elf's stake in pharmaceuticals company Sanofi.