The planned merger of British Petroleum Co. plc and Amoco Corp. is expected to result in a cost of $2 billion for subsequent layoffs and restructuring.
In August, BP and Amoco an-nounced their plans to create BP Amoco plc to achieve savings of $2 billion/year by yearend 2000 (OGJ, Aug. 17, 1998, p. 34).
BP's letter
The revelation about the anticipated cost of the merger came in a circular letter from BP Chairman Peter Sutherland to shareholders, sent out ahead of an extraordinary general meeting of BP shareholders set for Nov. 25.The meeting was scheduled to enable BP's board to secure the approval of shareholders for the BP-Amoco deal. The company said that approval would mark a major step in its merger timetable and keep it on track for closure of the deal by yearend.
Sutherland told shareholders the anticipated cost savings from the merger will come from staff reductions in overlapping areas, more focused exploration efforts, standardization and simplification of business process such as information technology, improved procurement, and the elimination of duplicated operations such as distribution terminals.
"The BP and Amoco boards," said Sutherland, "expect that the cost savings will begin to flow through in the first 2 years, but that these are likely to be offset by special restructuring charges, currently estimated at $2 billion, which will be incurred over the first 2 years to cover the cost of achieving these savings."
One of the key reasons behind the merger, low oil prices, was blamed for a 28% fall in BP's third quarter replacement cost profit compared with the same period in 1997.
This year, BP's profit was $736 million for the third quarter, including $50 million raised by selling exploration and production interests in Papua New Guinea, a refinery in Lima, Ohio, retail outlets in Belgium, and some chemicals operations. BP said the result compared with a year ago reflected a one-third fall in oil prices. Although profits fell, BP raised oil production by 12% in the quarter and chemicals output by 10%, compared with third quarter 1997.
Announcing the results, John Browne, BP group chief executive, said, "As for BP Amoco, our merger plans are well advanced. Discussions with the regulatory bodies are going well.
"In parallel with these activities, a great deal of preparatory work has been done together by BP and Amoco to ensure rapid implementation once the deal is closed. We are currently on track to complete the merger by the end of the year."
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