The small, immaculately groomed, dark-haired man was Sir John Browne, chief executive of British Petroleum. The taller, grey-haired American opposite him was Larry Fuller, chairman of the US oil company, Amoco. They were putting the final touches to what was later billed as the biggest merger ever, BP's pounds 30.3bn takeover of America's largest producer of natural gas and fifth biggest oil firm announced last Tuesday.
It was the only risk the two men took at being found out as they strove to create what will soon be the UK's biggest company - BP Amoco - with a combined market capitalisation of pounds 66.6bn, and producing more oil than Kuwait. The other meetings over what BP called Project Bear, and what Mr Fuller called Project Belgium - to confuse any snoops - had taken place in private places on both sides of the Atlantic including JFK airport in New York and Sir John's home in Belgravia. When negotiations started in earnest less than ten weeks ago, only half a dozen people at the two companies knew, communicating by encrypted e-mail. By the end, several hundred Amoco and BP employees had been informed of what was happening.
But there were no leaks and the announcement took the rest of the world by surprise. So slick was the operation that it was almost a one-day phenomenon for the City and the media, remarkable for a merger of that size.
In one fell swoop, BP jumped to third place in the world league of oil super majors just behind Royal Shell and Exxon. Executives at those companies, already reeling from rock-bottom oil prices, were knocked for six by the sudden appearance of such a ferocious competitor. The City and Wall Street applauded.
The board of BP had, in fact, been scouting around for some kind of partnership for two and a half years, ever since it established a venture with Mobil over retail distribution and refining in Europe. The company's chairman, Peter Sutherland, said there was never really any choice. Amoco was the perfect partner.
The purchase of Amoco is the icing on the cake of a decade of spectacular recovery for BP, the first company to strike oil in the Middle East, but which by the mid-Eighties had sunk to an almost marginal player in the global oil game.
At the heart of the merger logic is, of, course, reduction in company costs. BP Amoco estimates the combination of resources will leave it with an extra pounds 2bn in cash by 2000. Most agree this is conservative.
"John Browne and his team are very good and if they put into Amoco some of those management skills, they will get savings bigger than those disclosed," said Pierre Jungels, chief executive of the independent UK oil firm, Enterprise Oil.
But the merger, which gives BP 60 per cent ownership of the company and Amoco 40 per cent, will in the long term be remembered as an astute strategic move.
"Being a super-major means having not just the capital but also the people to decide where to invest," said Peter Sibley, who heads the oil and chemicals practice at the management consultants, AT Kearney. In short, it will be able to take more risks in this risky business, and look forward to more lucrative returns as a result.
BP's position has been strengthened in petrochemicals, making it the world's third biggest chemical firm. Its US refining operations have received a massive boost as has BP's position in North American natural gas. All this will make the company less susceptible to swings in the oil price, which have sunk to a 12-year-low.
"We are capable of dealing with the oil price but will be even more capable after the merger" said Mr Sutherland.
It is a perfect fit for Amoco, too. Although the UK based company has the largest natural gas reserve in North America, it needs BP's oil reserves to meet future demand.
The new company, BP Amoco, will have an estimated 35 per cent of the gas market. Amoco also brought to the partnership 9,300 petrol stations in the US, catapulting the new company to the number one market position in several US states. As a result of its joint venture with Mobil, BP is already market leader in Europe, but in the US it trailed at around number ten.
"That simply didn't provide us with the type of potential for earnings growth we needed," said Mr Sutherland.
The merger move will also help BP increase its presence in Asia and Latin America, making it the largest producer in the Caspian sea. More importantly, BP Amoco will become the biggest producer of oil in the industrialised world.
"We think it's a big positive that we become the biggest producer by far in the OECD area, which means absolute stability for the future," said Mr Sutherland. This compares to the other majors, who are still dependent on supplies from more volatile parts of the world, the most obvious being the Middle East.
Like most mergers, the flip side will be job cuts - around 6,000 of them - mostly in the US. The number of staff on BP's payroll has already shrunk from 100,000 at the beginning of the decade to 56,000 today. Many of those jobs went with businesses that have been sold. The same could happen this time, as there will doubtless be some asset disposals as a result of the merger.
As Sir John did the rounds among US institutional investors last week to convince them to buy BP American Depository Receipts once the deal is done (the merged company's main listing will be in London), concern was expressed over European Union regulatory intervention. This is unlikely, as the deal throws up no major competition issues, the only one concerning a handful of retail petrol sites in the US.
In any case, you can bet Mr Sutherland, a former EU competition commissioner and a lawyer, has been through the agreement with a fine tooth comb.
Nor is there any chance of embarrassing breakdown, such as the recent failed merger of SmithKline Beecham and Glaxo. Sir John, who will be the new chief executive of the company, and Mr Fuller who will co-chair BP Amoco until 2000 (along with Peter Sutherland), speak with one voice, ruling out the possibility of a damaging ego clash. Cultural clashes in this global industry are also unlikely to surface, especially as Sir John, a Stanford Business School MBA graduate, is well versed in US corporate practice. A counter bid from an other oil company is effectively ruled out by a clause in the agreement obliging BP to pay Amoco $1bn if the deal turned sour.
"The main challenge will be to quickly and effectively execute the highly complex post-merger integration process to bring the new entity on line." said Peter Sibley.
Even though BP is used to change, the size and complexity of the transaction will still require an enormous effort if the new company is to gel effectively.
Rivals like Texaco, Exxon and France's Elf will be watching most closely of all as they now decide whether to take the same path as BP and join forces with a competitor, or battle for their market share alone.Reuse content