Saturday, March 30, 2019

The Merger Of Bp And Amoco

The union Of Bp And AmocoBritish vegetable fossil oil and Amoco announced their optical fusion on August el so farth of 1998 as the largest industrial uniting in write up worldwide. Initially the invent was to convert all the BP service move in the United States into Amoco, whereas oversea all the Amoco service stations were supposed to be converted into bps.However, in 2001 BP announced that all Amoco service stations would be renamed into BP while well-nigh former(a)s would be closed or disposed of, leading to an holy rebranding of Amoco Fuels.During 2008, virtually all Amoco Fuels service stations had been restored by BP gun with Invigorate and on the button a few of them remained trading operations under the original Amoco brands name.On April 2010, streak purchased some of the remaining Amoco Fuel service stations, mostly in disseminated sclerosis and converted them into Texaco service stations.After the spill in the disjunction of Mexico from Deepwater Horizon, BP considered to rebrand their US based operations back into Amoco Fuels as the comp any(prenominal) suffered a stemma in sales on account of the negative publicity associated with the incident. guilds compassIn 1909, the Anglo-Persian oil color Company (APOC) was incorporated as a foot soldier of Burmah Oil Company to exploit a concession to search for anele in Iran. By 1935, it became the Anglo-Iranian Oil Company (AIOC), but after the b insufficiency lotion of the pro-western Prime Minister Ali Razmara, the oil labor in Iran was nationalized and National Iranian Oil Company was formed displacing the AIOC. By the prison term, the British government have the AIOC and contested the nationalization at the International Court of Justice at The Hague, but its complaint was dismissed.However, in 1953, National Iranian Oil Company became an international consortium, and AIOC resumed operations in Iran as a member of it. The AIOC became the British oil color Company in 1954 and the British government was controlling it again.In 1959 the society expanded beyond the Middle East to Alaska and by 1978 it reckond a controlling interest in Standard Oil of Ohio.Nevertheless, British Petroleum Company continued operating from Iran until the Islamic Revolution in 1979, when the impertinent regime confiscated all of the clubs assets within the country with go forth compensation, bringing the fetch up of the British 70 years presence in Iran.Between 1979 and 1987, the British governments entire holding on the company was sold to several private investors and in 1987, British Petroleum negotiated the skill of Britoil.Moreover, Standard Oil of California and Gulf Oil had merged in 1984, it what would be cognize as the largest jointure in history at that time however the antitrust canon relented many of its operating subsidiaries in the Gulf and sold some stations and a refinery in the eastern United States, allowing British Petroleum to acquire most of them .Finally, John Browne, who had been on the board as managing director since 1991, was appointive group chief executive in 1995. Browne is considered the responsible for bps trinity major acquisitions Amoco, ARCO and Burmah Castrol.Development of the nuclear fusion reactionIn 1997 BP and Amoco net income was US$ 4.6 billion and US$ 2.7 billion respectively. Combined revenues were US$ 108 billion and uppercase employed US$ 57 billion. The combined market capitalization was metrical around US$ 110 billion, a figure which would place the freshly formed corporation among the top three oil companies in the world.The assign was pass judgment to deliver synergies from cost savings that would add at least US$ 2 billion pre-tax a year by the end of 2000 to the clams already separately targeted by the 2 companies.Finally, when British Petroleum merged with Amoco in December 1998 the company in addition acquired Burmah Castrol plc. and Arco (Atlantic Richfield Co.) closing the deal in too soon 2000.BP continued selling Amoco branded petrol even in service stations with the BP identity since Amoco had been rated as the best petroleum brand by consumers for 16 consecutive years comparable scarcely to Chevron and Shell.In 2008, the high grade available petrol from BP (BP Gasoline with Invigorate) was still called Amoco Ultimate and BP decided to move it as most of its petrochemical business organizati unitys into a separate entity called Innovene within the BP Group.Terms agreed for the jointureThe pre-merger negotiations conducted between the twain companies were relatively fast compared to other(a) transactions in the same scale. The benefits expected two companies were easily identified and agreements were developed in a accessible manner.The terms were disclosed immediately and were summarized as followingValue of the merger US$ 53 billionMerger deal instrument plough percent swap (exchange of stock)Exchange Ratio agreed Amoco shareholders were offe red 3.97 BP shares for each share of Amoco earthy stockAmoco shareholders aid above BPs current market measure 25%Increase in number of shares after the merger 15%Shareholders structure after merger 60% BP shareholders 40% Amoco shareholdersHeadquarters of the clean company after merger BP Amoco plc. transmitquarters remained in London and Amocos head office became the headquarters for the companys North American operationsTrading market for the companies BP and Amoco shares would remain listed on the London line of descent Exchange and advanced York Stock ExchangeCompanys management structure after merger BPs chief executive officer Sir John Brown would continue leading the company co-chaired by BPs chairman Peter Sutherland and Amocos chairman Larry FullerStaff cuts after merger BP Amoco plc. confirmed cost declines from a cut-off in personnel the two groups had 99,450 employees together, with BP employing 56,450 and Amoco the rest. The reduction in first stage would rep resent 11% to 13% of the come inCombined reserves 14.8 billion barrels. Serving 17,900 BP service stations around the world and 9,300 Amoco service stations all in the USOptions pegged to the merger Amoco granted BP an option to purchase 189,783,270 shares of Amoco rough-cut stock at a toll of US$ 41 per share. This represented rough 19.9 % of the outstanding Amocos common stockDividend payout after the merger Both companies would continue to pay every quarter dividends in the ordinary course prior to the implementation of the merger, then its dividend form _or_ system of government was to continue paying 4 dividends a year and with a payout of approximately 50 % of through cycle earningsThe Merger Agreement would also provide termination fees to be paid by one company to the other under certain circumstances. The circumstances in which either ships company is able to terminate the Merger Agreement includeIf either Amoco or BP shareholders do not approve the merger and related transactionsIf the other party enters into negotiations with any other person in relation to an acquisition offer for that partyIf the board of the other party withdraws or adversely modifies its approval related to the mergerMarket conditions leading to the mergerIn order to get a better understanding about wherefore the BP-Amoco merger is considered as one of the most lucky mergers in history and which factors contributed to given success, it is important to deem about the different aspects from the oil assiduity market that either the management and the shareholders from two companies took into account to be convinced that the transaction would only add prize and the risks would be coveredOil prices worldwide were depressed and had fallen to their lowest levels in over a decadeThe price of a barrel of Brent crude oil had decreased to US$11.8 in real terms the lowest price in 25 yearsNo oil company of any real size of it was immune to a takeover threat during the early 19 90s their stock prices were depressed. It was cheaper to buy oil reserves on circumvent Street than by exploration and developing outlays. These pressures caused the major oil companies to worry in a wide range of restructuring activities and costs reductionsRestructuring efforts and improvements in technologies had move costs to US$16 to US$18 per barrel. Oil prices declined to US$9 per barrel in late 1998. Thus, the overriding objective for the mergers tooth root in 1998 was to that increase efficiencies to lower breakeven levels toward the US$11 to US$12 per barrel rangeAmoco had reported the month before a fall of more than than 50% in second quarter earningsAmoco, being the fourth largest US oil producer, was hurt by its lack of international refiningCombining the chemicals operations of BP and Amoco would create a business with revenues of US$ 13 billion that together with the strengths of BP in Europe and Amoco in the US would provide a powerful platform for expansion in Asia where twain companies already had operative investmentsThe new chemicals business would be one of the worlds largest petrochemicals companies, with leading positions in 7 core products acetic acerbic, acrylonitrile, aromatics, purified terephthalic acid (PTA), alpha-olefins, purified isophthalic acid (PIA) and polypropylene. A diversified portfolio of identify proprietary technologiesBest practices in acquisitions issues indicated that the successful mergers carried out in previous years tended to be those in which the goods or services offered by the companies involved in the transaction were highly similar, contrast mergers between companies seeking to combine different markets and diversify its business. The latter were comfortably more risky and the probability of failure was higherFeatures of BP-Amoco merger versus Daimler-Chrysler mergerIn contrasting the BP and Amoco merger to Daimler and Chrysler, it is important to outline the main differences both in the pre- merger requisite as well as the merger implementation. Particularly, with paying attention to each companys ability to adapt to the changes after the merger and the manner in which the target markets would accept the new company.The acquisition of Chrysler marked the first time one of the Detroit Big Three automakers would be in the hands of a private equity firm. There are those who say the merger, which faced significant cultural differences, was doomed from the start.Originally, the plan was for Chrysler to use Daimler parts, components and even vehicle computer architecture to sharply reduce the cost to produce future vehicles. But problems surfaced when Daimlers Mercedes-Benz lavishness division, whose components Chrysler would use, was averse to contribute to Chrysler. Further, the immediate perception of the market was that the new company would produce vehicles with lower quality standardsBoth automakers wanted to enter markets overseas that they had never explored before, and that consumers would be unwilling to accept such change.In the setback to the car fabrication, the oil industry had been, arguably more than any other industry, forced to adjust to the massive change forces of globalization and entrepreneurial innovations. It stands out from most other industries in many ways, one being the creative activity of a truly global market in which 53% of the amount volume is traded internationally. Oil itself accounts for about 10% of total world trade, more than any other commodity.Furthermore, there are some other key factors that contributed specifically to BP-Amoco merger success compared to Daimler-Chrysler such asAmoco and BP believed that the bigger companies among the industry would win the best opportunitiesAmoco and BPs merger was cataloged by the oil industrys experts as one superb alliance of equals with complementary strategic and geographical strengths which effectively creates a new super-major that can better serve millions of cu stomers worldwideIt was known that within the oil industry, the best investment opportunities would go increasingly to companies that had the size and financial strength to take on those large-scale projects that offer a truly distinctive returnThere were accounting reasons in both companies why the merger would be more appropriate and would create valueAmoco had a lack of international refining. Nonetheless, it also had important findings from research and development technologies to offer (a deal with an oil major was only a affaire of time)Both, BP and Amoco had significant investments in solar energy and share strong records and reputations for overweight operating practices, environmental and social responsibility. It was easy to predict that they were able to share the same practices and therefore the same marketsQuite the opposite, Daimler-Chrysler never considered that their businesses were focused on different markets in terms of geographies, type of vehicles and prices. In addition to that, with debate to Chrysler, markets for passenger cars and commercial vehicles were deteriorated at the time of the merger (low growth expectations)In addition, the adaptation of automotive companies after the merger would be much unhurried than that of oil companies given the production practices of each of the parties. In other words, the origination of oil was very similar whereas car production had significant differencesConclusions match to Berkovitch and Narayanan2) there are three major types of indigences for mergers synergy, hubris, and agency problems. BP-Amoco merger met the three of themSynergy efficiency objectives were promised and achieved costs were reduced by adoptions of best practices from both companies, particularly in combining advanced technologies. The market cap of the company after the merger resulted 12.5% higher than the sum of both companies market cap.Hubris this motivation may be reflected in overpaying for the target in this case, Amocos shareholders premium subject was around 25%, higher than any other merger premium negotiated within the industry.Agency problems Since the Return on Equity (ROE) and the Return on Capital Employed (ROCE) increased after the merger, it can be take over that the management and shareholders targets were well aligned and therefore agency problems were not implied.Moreover, different from Daimler-Chrysler merger the reasons, the structure, and the implementation of the BP-Amoco transaction reflected the characteristics provided by the oil and gas industry to ensure the success of the mergerThere are no significant differences between the product from different brands (petrol is pretty much the same, no count who extracts it).The industry increasingly utilizes advanced technology in exploration, production, refining, and in the logistics of its operations (it is evident the cost reduction since all the companies require the same expenditures) correspond to the market condition s related to the oil industry mentioned before, the BP-Amoco merger was convenient and most needed to push the barriers surrounding the industry as the fall in crude prices and the high costs regarding exploration and development that were required to further increase its production.Concerning to Daimler-Chrysler, many factors were not considered before the merger and limited the achievement of outcomes expected, mainly on issues of marketing, synergies in production and work culture.http//www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/downloads/A/ARCO_Key_facts_and_operating_statistics.pdf Mergers and Acquisitions ARCO. 2008Berkovitch, Elazar and M. P. Narayanan, 1993, Motives for Takeovers An Empirical Investigation, Journal of Financial Quantitative Analysis, 28 (No. 3, September), 347-362.http//www.adb.online.anu.edu.au/biogs/A080230b.htm. Australian mental lexicon of Biography. Retrieved 5 Jun. 2010Copeland, Tom, Tim Koller, and Jack Murrin, 2000, Valuation Measuring and Managing the Values of Companies, 3rd ed., New York, NY, John Wiley Sons.http//en.wikipedia.org/wiki/BPANNEXESBP Recent financial data in millions of US$twelvemonth2002200320042005200620072008Sales180,186236,045294,849249,465265,906284,365361,341EBITDA22,94128,20037,82541,45344,835Net results6,84510,26715,96122,34122,00020,84521,157Net debt20,27320,19321,60716,20216,202

No comments:

Post a Comment