Giant merger for BP fails to dispel gloom

THE WORLD'S biggest industrial merger was unveiled yesterday as BP revealed it had agreed a deal to take over the US oil company Amoco for pounds 68bn. The deal also turns BP into Britain's biggest company.

However, the record breaking merger failed to halt the slide in world stock markets. More than pounds 22bn was wiped off the value of shares in London as dealers panicked over the impact of the Asian crisis.

The merger of the two oil giants will lead to 6,000 job losses from their combined workforce of 100,000. But Sir John Browne, chief executive of BP Amoco, pledged that the number of redundancies in the UK would be "very small".

BP Amoco will have sales of pounds 66bn, more than 28,000 petrol stations, and will rank as the world's third biggest oil company, just behind Shell and Exxon.

The merger was hatched in the strictest of secrecy over the last six weeks under the code-name Project Eagle, with BP referred to as Bear. The deal was signed yesterday morning in BP's Britannic House headquarters in the City of London.

BP Amoco has promised to lift profits by pounds 1.2bn in the next two years through efficiency measures. Boardroom salaries will be linked to this target. But there could be an immediate pay bonanza for top executives in the American company who are sitting on 40 million share options worth pounds 1.2bn.

Sir John described the deal as an "alliance of equals", but it is a takeover. BP shareholders will own 60 per cent of the enlarged company and BP directors will account for a majority of seats on the company board.

The company will have its headquarters in London and its primary listing will be on the London Stock Exchange. The brunt of the 6,000 job cuts are expected to be in the United States.

Dealers have not ruled out the possibility of a counter bid for Amoco. But there is a "poison pill" clause in the agreement with BP which means that if either side pulls out of the merger it has to pay the other pounds 600m compensation. BP and Amoco claimed there would be few regulatory obstacles to the deal and said they expected to complete the merger by the end of the year.

Last night, City analysts were predicting the surprise merger would trigger a wave of consolidation in the world oil industry as smaller players such as Texaco and Mobil get together to fight the challenge posed by BP Amoco.

BP has just under 17,000 petrol stations worldwide which will remain under the BP brand name, except in the US where they will be converted to Amoco stations.

The merged company will have combined reserves of 15 billion barrels of oil, and daily production of 3 million barrels. It will be the largest oil producer in the North Sea and the US. BP Amoco will also become the world's third biggest chemicals company behind Shell and BASF of Germany.

BP and Amoco employ about 17,000 people in the UK. Sir John said there would be some job losses, but these are expected to be in the hundreds.

Other redundancies were announced yesterday with BOC confirming that 500 jobs would go in Surrey and Sussex, and Royal Ordnance announcing 200 job cuts. Meanwhile, the Confederation of British Industry added to the gloom by reporting that manufacturing industry was in recession in every region of the country.

There was also a deepening sense of impending disaster on the world's stock markets.

The FTSE 100 Index fell 154.8 points to 5432.8 points - its lowest level for six months. The index has now fallen by more than 10 per cent in less than a month. Wall Street also took a battering, with the Dow Jones Industrial Average falling 112 points - a fall of 1.5 per cent.