bp amoco merger case study

British Petroleum Merger with Amoco

• First Online: 30 November 2018

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• B. Rajesh Kumar 2  

Part of the book series: Management for Professionals ((MANAGPROF))

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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%.

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BBC News (1998) Business: the company file BP and Amoco in oil mega merger. http://news.bbc.co.uk/2/hi/business/149139.stm . Accessed 22 January 2018

Ibrahim Y (1998) British Petroleum is buying Amoco in a $48.2 billion deal. https://www.nytimes.com/1998/08/12/business/british-petroleum-is-buying-amoco-in-48.2-billion-deal.html . Accessed 22 January 2018

Oil and Gas Journal (1998) BP Amoco merger creates third supermajor. https://www.ogj.com/articles/print/volume-96/issue-33/in-this-issue/general-interest/bp-amoco-merger-creates-third-39supermajor39.html . Accessed 22 January 2018

Oil and Gas Journal (1999) BP Amoco finish merger after FTC approval. https://www.ogj.com/articles/print/volume-97/issue-2/in-this-issue/general-interest/bp-amoco-finish-merger-after-ftc-approval.html . Accessed 22 January 2018

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Kumar, B.R. (2019). British Petroleum Merger with Amoco. In: Wealth Creation in the World’s Largest Mergers and Acquisitions. Management for Professionals. Springer, Cham. https://doi.org/10.1007/978-3-030-02363-8_24

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Published : 30 November 2018

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The BP Amoco/ARCO Merger: Alaskan Crude Oil

The merger of British Petroleum and Atlantic Richfield as proposed would have made BP the sole operator and 70 percent owner of Alaskas oil fields. The Federal Trade Commission challenged the merger partly out of concern for higher West Coast gasoline prices, and required a divestiture ARCOs entire Alaskan business. However, West Coast crude prices are governed by the cost of the marginal source of supply to the region, imported oil. Because any cutback in sales of Alaskan oil on the West Coast could be offset with higher imports, with minimal impact on the import price, the merger would have raised crude prices by tenths of a penny per gallon at the most. The impact on consumer prices was even more tenuous. More serious concerns, which were given less attention, were that BP might gain monopsony power in bidding for oil leases and perhaps in negotiating with suppliers.

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The BP-Amoco Merger: Executive Compensation Harvard Case Solution & Analysis

Home >> Management Case Studies >> The BP-Amoco Merger: Executive Compensation

This case is designed for MBA course in planning management and control systems , an MBA from the M & A, MBA course on strategy, or any other class of the executive compensation system. This gives students the impact of executive compensation plans, design of measurement and incentive compensation in order to facilitate implementation of the strategy, as well as issues that arise in the post-merger integration. Significant differences in executive compensation for British Petroleum and Amoco Corporation prior to the merger of the two companies are interesting challenges to the successful integration of two executive team after the merger. Students were asked to evaluate the post-merger executive compensation plan in light of BP Amoco after the merger of the company's strategy, the differences in the pre-merger executive compensation plans, as well as issues related to post-merger integration in their preparation and class discussion. "Hide by Luann J. Lynch, Susan Perry Source : Darden School of Business 15 pages. Publication Date: April 18, 2000. Prod. #: UV1696-PDF-ENG

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BP Amoco p.l.c., and Atlantic Richfield Company

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Case Summary

The Commission authorized staff to file a motion in federal district court to prevent the merger of BP Amoco p.1.c. and Atlantic Richfield Company. The complaint, filed in the U.S. District Court for the Northern District of California, alleged that the merger would reduce competition in the exploration and production of Alaska North Slope crude oil and its sale to West Coast refineries, and in the market for pipeline and storage facilities in Cushing, Oklahoma. Under the terms of the order, BP Amoco was required to divest all of ARCO's assets relating to oil production on Alaska's North Slope (ANS) to Phillips Petroleum Company or another Commission-approved purchaser. BP Amoco also would have to divest all ARCO assets related to its Cushing, Oklahoma crude oil business within four months.

Case Timeline

Document Letter Approving Appointment of Alaskan Asset Maintenance Trustee and Cushing Asset Maintenance Trustee, and Approving Two Trust Agreements Executed by BP Amoco and Deloitte Consulting LP (2.32 KB)

PRESS RELEASE: Announced Actions for September 19, 2000

File Decision & Order (45.86 KB)

File Complaint (26.4 KB)

File Order to Hold Separate and Maintain Assets (60.15 KB)

Document Statement of Commissioner Anthony, Commissioner Swindle, and Commissioner Leary (11.63 KB)

Document Statement of Chairman Pitofsky and Commissioner Thompson, Concurring in Part and Dissenting in Part (20.93 KB)

PRESS RELEASE: Announced Actions for August 29, 2000

File Letter Approving Application for Approval of the Divestiture of the ARCO Cushing Assets to Texas Eastern Products Pipeline Company. (62.31 KB)

PRESS RELEASE: Announced Action(s) for July 18, 2000

File Text of the Application (272 KB)

File Letter Approving Application for Approval of Proposed Divestiture of Mobil's Interest in Colonial Pipeline Company to the Colonial Pipeline Company. (62.57 KB)

PRESS RELEASE: Announced Actions for May 16, 2000

File Letter approving Intellectual Property License Agreement, Intellectual Property Assignment and Patent License Grantback Agreement, and Transition Services Agreement (63.19 KB)

PRESS RELEASE: Announced Actions for April 28, 2000

File Agreement Containing Consent Orders, Including Decision & Order (56.74 KB)

Document Analysis of the Proposed Consent Order And Draft Complaint to Aid Public Comment (25.24 KB)

Document Statement of Chairman Pitofsky and Commissioner Thompson, Concurring in Part and Dissenting in Part (19.96 KB)

Document Statement of Commissioner Anthony, Commissioner Swindle, and Commissioner Leary (11.92 KB)

PRESS RELEASE: FTC Clears Merger of BP Amoco and Atlantic Richfield Company

File Complaint of Federal Trade Commission for a Preliminary Injunction Pursuant to Section 13(b) of the Federal Trade Commission Act (29.14 KB)

PRESS RELEASE: FTC to Challenge BP Amoco/ARCO Merger Alleging that Deal Would Raise Prices for Crude Oil Used to Produce Gasoline and Other Petroleum Products

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The bp-amoco merger: executive compensation.

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This case is designed for an MBA course in management planning and control systems, an MBA course on mergers and acquisitions, an MBA course on strategy implementation, or any class on executive compensation systems. It gives students exposure to executive compensation plans, the design of performance measurement and incentive compensation systems to facilitate the implementation of strategy, and issues that arise in post-merger integration. Significant differences in executive compensation for British Petroleum and Amoco Corporation prior to the merger between the two companies pose interesting challenges to successfully integrating the two executive teams after the merger. Students are asked to evaluate the post-merger executive compensation plan for BP Amoco in light of company's post-merger strategy, differences in the pre-merger executive compensation plans, and issues surrounding post-merger integration in their preparation and class discussion.

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Please note you do not have access to teaching notes, bp‐amoco brings out the best in its people: ...and the lessons learned from other successful international mergers.

Human Resource Management International Digest

ISSN : 0967-0734

Article publication date: 1 March 2004

The merger between oil giants British Petroleum (BP) and US‐based Amoco brought about more benefits, more quickly than either organization had forecast. It is regarded by some as one of the most successful mergers of two large international groups. An important reason was the extensive preparations made for the merger.

• International business
• Oil industry
• Motor industry

(2004), "BP‐Amoco brings out the best in its people: ...and the lessons learned from other successful international mergers", Human Resource Management International Digest , Vol. 12 No. 2, pp. 9-11. https://doi.org/10.1108/09670730410526316

Emerald Group Publishing Limited

Copyright © 2004, Emerald Group Publishing Limited

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The Bp Amoco Merger: Executive Compensation

17 Pages Posted: 21 Oct 2008

Luann J. Lynch

University of Virginia - Darden School of Business

This case is designed for an MBA course on management planning and control systems, an MBA course on mergers and acquisitions, an MBA course on strategy implementation, or any course on executive-compensation systems. It exposes students to executive-compensation plans, the design of performance-measurement and incentive-compensation systems to facilitate the implementation of strategy, and issues that arise in postmerger integration. Significant differences in executive compensation at British Petroleum and Amoco Corporation before the merger of the two companies pose interesting challenges to the successful integration of the two executive teams after the merger. Students are asked to evaluate the postmerger executive-compensation plan for BP Amoco in light of the company's postmerger strategy, differences in the premerger executive-compensation plans, and issues surrounding postmerger integration.

Keywords: mergers and acquisitions, executive compensation, incentives, strategy implementation

Suggested Citation: Suggested Citation

Luann J. Lynch (Contact Author)

University of virginia - darden school of business ( email ).

P.O. Box 6550 Charlottesville, VA 22906-6550 United States 434-924-4721 (Phone) 434-243-7677 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lynch.htm

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BP Amoco (A): Policy Statement on the Use of Project Finance

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Benjamin C. Esty

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BP Amoco (B): Financing Development of the Caspian Oil Fields

• BP Amoco (B): Financing Development of the Caspian Oil Fields  By: Benjamin C. Esty and Michael Kane

Case Study Solutions

The BP-Amoco Merger: Executive Compensation

Subjects Covered Energy Executive compensation Implementing strategy Incentives Mergers & acquisitions

by Luann J. Lynch, Susan Perry

Source: Darden School of Business

15 pages. Publication Date: Apr 18, 2000. Prod. #: UV1696-PDF-ENG

The BP-Amoco Merger: Executive Compensation Harvard Case Study Solution and HBR and HBS Case Analysis

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The BP-Amoco Merger: Executive Compensation

Subjects Covered Energy Executive compensation Implementing strategy Incentives Mergers & acquisitions

by Luann J. Lynch, Susan Perry

Source: Darden School of Business

15 pages. Publication Date: Apr 18, 2000. Prod. #: UV1696-PDF-ENG

The BP-Amoco Merger: Executive Compensation Harvard Case Study Solution and HBR and HBS Case Analysis

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British Petroleum Is Buying Amoco in $48.2 Billion Deal

By Youssef M. Ibrahim

• Aug. 12, 1998

British Petroleum P.L.C. announced today that it would acquire the American oil giant Amoco for $48.2 billion in stock in the largest oil industry merger ever.

The deal would also be the largest takeover of an American company by a foreign concern.

If approved by regulators and by shareholders of both companies, BP Amoco, as the company is to be known, would be the world's third-largest multinational oil company in terms of net income after the Exxon Corporation and the Royal Dutch/ Shell Group of Companies.

Consumers in the United States are unlikely to feel any immediate effects of the deal. Prices at gas pumps are mostly dependent on world oil supplies, which are currently plentiful. And while the consolidation of gasoline outlets may slightly decrease retail competition, the combined exploration prowess of the companies could eventually result in larger supplies of crude oil.

Executives at other oil companies said that the deal benefited both B.P. and Amoco. The main strength of British Petroleum, they said, is in looking for and finding oil reserves. But the company is weak in the business of refining oil into products and chemicals and distributing it to consumers, operations at which Amoco excels.

''The strength of Amoco is in areas that are lacking at B.P. such as the natural gas reserves which it possesses and petrochemicals,'' Andrew Avramides, an oil consultant in London, said. ''The merger brings these assets into a larger, far more comprehensive structure, making BP Amoco a true giant with enhanced structures.''

The merger will allow the companies to consolidate their spending on exploration, which would exceed that of Exxon and Royal Dutch/Shell. In addition, officials of both companies said the deal would allow them to become more competitive in regions like the former Soviet Union, China and Latin America, where competition has increased as companies seek new sources of revenue.

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BP-Amoco finish merger after FTC approval

The U.S. Federal Trade Commission has allowed British Petroleum Co. plc and Amoco Corp. to merge if they sell 134 gasoline stations and nine terminals and allow more than 1,600 independent gasoline stations to switch suppliers.

On Dec. 31, BP and Amoco completed the $53 billion merger transaction, announced Aug. 11 (OGJ, Aug. 17, 1998, p. 34).

Stocks buoyed

American Depository Shares of BP Amoco were subsequently listed on the New York Stock Exchange and the Pacific, Chicago, and Toronto stock exchanges to enable trading effective the start of business on Jan. 4.

Almost immediately, the share price for the new company began to rise, against the general downward trend in petroleum stocks. London's Financial Times (FT) reported that, on Jan. 4, BP Amoco shares rose 21.5 pence (35.5¢) during the day's trading to close at £9.25/share ($15.25/share).

Some fund managers and dealers complained that the opening share price for BP Amoco stock was set too low, causing investors to lose money.

Nevertheless, on Jan. 4, FT reported that 187 million BP shares changed hands, making it the most traded stock on the markets that day.

With a market capitalization of more than $140 billion, BP Amoco will be Britain's biggest company and one of the world's top three oil majors.

FTC Chairman Robert Pitofsky said, "Although the merger of BP and Amoco involves companies of enormous size, and there is a significant trend toward concentration in the petroleum industry, the operations of these two companies rarely overlap in a way that threatens competition.

"Where they do overlap, mainly in wholesale and retail sale of gasoline in local markets in this country, the commission, with the cooperation of the companies, has achieved substantial divestitures and other relief that makes it likely that consumers will enjoy the benefits of competition."

The commission determined BP's and Amoco's operations do not overlap significantly in oil and gas production or petrochemical manufacturing.

But it had concerns about the wholesale sale of gasoline in 30 cities or metropolitan areas in the eastern U.S. and the terminaling of gasoline and other light products in nine markets. FTC said entry into the wholesale gasoline market is difficult.

Gasoline stations

Also, in all 30 markets, including those where neither BP nor Amoco owns service stations, the settlement would require them to give their wholesale customers (both jobbers and open dealers) the option of canceling their franchise and supply agreements with Amoco and BP, freeing them to switch their stations to other brands. More than 1,600 service stations could be affected, FTC said.

To create an incentive for these dealers to change brands, the proposed settlement order would provide that wholesale customers that take advantage of this provision would be released from all related debts, loans, and other responsibilities (other than for fuels actually delivered and some specifically identified loans), if they agree to switch to another brand that has less than 20% of the market.

The 30 markets are: Tallahassee, Fla.; Albany, Athens, Columbus, and Savannah, Ga.; Birmingham, Dothan, Florence, and Mobile, Ala.; Hattiesburg and Meridian, Miss.; Clarksville, Jackson, and Memphis, Tenn.; Charleston, Columbia, Myrtle Beach, and Sumter, S.C.; Charlotte, Fayetteville, Goldsboro, Hickory, Raleigh, and Rocky Mount, N.C.; Charlottesville, Va.; Cumberland, Md.; Pittsburgh, Pa.; and Toledo, Cleveland, and Youngstown, Ohio.

The proposed order would require that, unless retail gasoline sellers representing a specified volume of sales in Toledo and Youngstown, Ohio, agree to switch to other brands, the companies must divest retail gasoline stations with an equivalent volume of sales to an acquirer acceptable to FTC.

Dealers nervous

An Amoco official said that, on Dec. 30, the company began sending letters to its dealers and distributors informing them of the merger, the FTC's conditions of approval, and what the likely impact would be on them.

"We couldn't do anything until we had the (FTC) consent decree," said the official. "Amoco and BP have 6 months to sell the affected stations, which could then remain open under another company's brand."

The official said it was too soon to say if some would be forced to shut down altogether: "We regret that we will need to part ways with a number of loyal and longtime customers."

The proposed settlement would require BP and Amoco to sell the nine terminals to Williams Energy Ventures Inc., a Williams subsidiary, or to another buyer approved by FTC. The divestiture must occur within 10 days of the BP-Amoco merger, or 30 days after the consent agreement is signed, whichever is later.

The nine areas affected by this part of the settlement are: Cleveland, Ohio; Chattanooga and Knoxville, Tenn.; Jacksonville, Fla.; Meridian, Miss.; Mobile and Montgomery, Ala.; and North Augusta and Spartanburg, S.C.

The commission reconsidered the BP-Amoco deal after Exxon Corp. proposed Dec. 1 to buy Mobil (see Watching Government, p. 31).

Before the merger, Amoco was the fifth-largest oil company in the U.S., with roughly 9,300 gasoline stations. BP, previously the world's third-largest oil company, sells its products through a network of about 17,900 stations.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.

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