The all-share deal is due to be unveiled tomorrow or on Thursday following board meetings of the two oil companies. It will turn BP Amoco into the world's second-biggest oil major behind Exxon-Mobil.
BP Amoco shares surged 4 per cent on confirmation of the merger talks, helping the FTSE 100 index of leading shares to close 113.7 points higher at 6,252.9. BP Amoco is the biggest constituent in the index, which was also boosted by takeover speculation in the pharmaceuticals and publishing sectors.
Shares in Arco rose by more than 10 per cent to $72.75, helping drive the Dow Jones higher. The BP Amoco offer had been expected to value Arco at about $77, but the rise in its own share price may raise this to above $80.
The merger is expected to produce cost savings of around $1bn, principally through rationalising their joint operations in Alaska where BP Amoco and Arco operate the Prudhoe Bay field. Arco has already pledged to trim costs by $500m under a rationalisation plan that will cost 1,200 jobs.
But there is also likely to be a goodwill write-off of up to $6bn as the deal will be classed as a takeover under international accounting rules. Last year's pounds 80bn link-up of BP and Amoco was classed a merger.
Analysts united yesterday in welcoming the BP Amoco-Arco deal, describing the two companies as a good fit and praising the BP Amoco chief executive, Sir John Browne, for stealing a march on Royal Dutch Shell.
The deal is unlikely to run into major regulatory hurdles as Arco's petrol retailing is focused on the US West Coast, where it has 1,700 stations and a 26 per cent of the California market. BP Amoco's operations are mainly on the East Coast and in the Mid West.
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