Outlook: Browne makes a dream marriage

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The Independent Online
THE BREAK-UP of John D Rockefeller's Standard Oil in 1911 was one of the first big anti trust cases brought in the US. Later the Justice Department moved on AT&T too, breaking it up into a long distance operator and a collection of local Bell operating companies, the so called Baby Bells.

Time marches on, and now through merger and acquisition, these old monopolies are being reassembled, or at least partially so. Long distance telephone operators are merging with Bell operating companies, and the Baby Bells are merging one with another. Yesterday's awesome merger announcement from BP and Amoco brings together two of the six companies so forceably extracted from the original Standard Oil - Standard Oil of Ohio (now part of BP) and Standard Oil of Indiana (from which Amoco grew).

Well, we live in a global economy now don't we, and mergers which even ten years ago would have been seen as unacceptable are now positively welcomed by regulators and politicians alike. Certainly BP's takeover looks unlikely to encounter serious regulatory obstacles. BP will become number one or two in the market in terms of sales across a large swathe of the US Eastern seaboard and the Mid West, but even so market share won't be high enough to justify radical regulatory surgery. Overlap in Europe on sales and refining is virtually non existent.

From an investment point of view too, the deal looks like a dream marriage, the only caviat being that size on this scale often proves unwieldy and consequently unmanageable. None the less, integrated oil companies have more experience of operating on a global scale than almost any other industry and their cultures tend to be more similar than in other businesses too. Moreover, even after this deal, BP will still be only the third largest in the world after Exxon and Shell, so there's no reason it shouldn't work.

It is not hard to see why investors love this deal so much. At a stroke it transforms BP's market position from distant to close third, putting it in an altogether different league and greatly increasing its fire power and clout. It's not just the $2bn of annual cost savings. For the first time BP will be batting on the same level as the other two. This is not an automatic guarantee of success. Both Shell and Exxon have been through the trenches. But in the oil industry it does give a strong lead off the starting blocks. Medium and smaller players are going to find it increasingly difficult to survive in such an environment, even though some of them - Enterprise being the obvious example - have an outstanding exploration record.

Sir John Browne, chief executive of BP, was always going to find it hard to build on the enviable record of his predecessor, David (now Lord Simon), the man who brought BP back from the dead. With this deal, he gives himself more than a fighting chance. There will be some financial fall out. US investors do not, on the whole, like holding stock in UK listed companies, and many will sell down the BP shares they get in return for their Amoco stock. But on the face of it, Sir John seems to have pulled off the deal of the year and for that he deserves applause. Now all he's got to do is make it work.

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