Outlook: BP Amoco Arco

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SIZE ISN'T everything, insisted the diminutive Sir John Browne yesterday as he duly unveiled the deal that turns BP Amoco into the world's biggest oil producer outside of Opec. But he will have to work harder than last time to persuade the world that BP Amoco Arco is about more than just aggrandisement.

The markets are already fretting that Sir John may have overpaid while the regulators will make him sell off a third of the group's combined acreage in Alaska to satisfy competition concerns.

As befits a deal of this size, there are some other big numbers floating around, including a $400m tax charge and a $20bn goodwill write-off. But the secret of goodwill accounting is to make the figure so big that the analysts look through it. In any case, it will more or less be paid for by the projected $1bn of annualised savings.

Sir John is alive to the fact that scale carries with it disadvantages as well as advantages and he is tackling them head on. Since BP Amoco does not have to pretend this is a merger, it can dispense with the niceties immediately. That means the whole Arco board will be cleared out, suitably compensated of course, while nearly all of the 2,000 job losses, including those in the UK, will be at the expense of Arco employees.

But there is one disadvantage of scale that Sir John can do nothing about. The Arco merger will increase BP Amoco's weighting in the FTSE100 Index to nearly 10 per cent, perilously close to the limit at which many index tracking funds have to stop buying. Without them piling in, BP Amoco can no longer count on the phenomenon of "index powering" to drive its share price ever higher - one of the reasons it was able to use paper to acquire Arco. Then again, having swallowed Amoco for breakfast and Arco for elevenses, Sir John will surely want to take his time identifying something for lunch.