NEW YORK (CNNfn) - British Petroleum PLC said Tuesday it has agreed to acquire Amoco Corp. in a deal valued at approximately $48 billion, making it the biggest-ever industrial merger.
The companies said the acquisition will form an energy conglomerate with a market capitalization of $110 billion.
If completed, the deal will create the biggest U.S. oil and gas producer as well as Britain's largest corporation. The new company, to be called BP Amoco PLC, will be based in London.
"We are uniting two excellent portfolios of assets and people to create a group that will have the financial resources, scale and global reach to compete effectively in the 21st century," the companies said.
Under terms of the acquisition, which has been approved by both companies' boards, BP will exchange 3.97 new ordinary shares in the form of American depositary receipts for each Amoco share. Each ADR represents six BP ordinary shares.
(Click here to see a chart of BP's year-to-date stock activity)
Based on Monday's closing prices, that would make each Amoco share worth $50.25 and value the deal at approximately $48 billion.
Amoco (AN) shares gained 6-3/8, more than 15 percent, to 47-3/8 in late-morning trading. BP (BP) ADRs climbed 3-1/2 to 79-1/2.
(Click here to see a chart of Amoco's year-to-date stock activity)
Analysts liked the deal as much as investors. Michael Smolinski, an analyst at First Albany Corp., called the deal "a perfect marriage."
"If you look at BP, the areas they most needed improvement in are where Amoco is strongest -- chemicals, U.S. refining and marketing, and U.S. and Canadian natural gas," Smolinski said.
"Amoco is a dominant North American player, but it's weak in the international market. This allows the shareholders of Amoco to have a balanced international portfolio."
The companies said the combined unit will have reserves of approximately 14.8 billion barrels of oil and gas equivalent and daily production of about 3 million barrels.
In terms of revenue, a combined BP-Amoco would rank as the third-largest oil company behind Royal Dutch/Shell Group and Exxon Corp. (XON). Analysts said the deal puts BP and Amoco in a better position to compete with those firms.
"Royal Dutch and Exxon have always traded at premiums in the market," said Kate Warne, an analyst at Edward Jones. "The merger puts BP and Amoco in the same size and presence globally, and it should give them the same premium value."
6,000 job cuts expected
The companies said they expect the merger to create an additional $2 billion in annual pre-tax earnings through cost savings by the end of 2000.
Part of those cost savings will come from layoffs. The combined company would have approximately 100,000 employees worldwide.
A BP spokesman said the companies currently expect to cut about 6,000 jobs, based on where the two companies' businesses overlap.
Analysts said those job cuts will end up helping the new company in the long run.
"Cost saving is a big piece of what oil companies have to do," Warne said. "This is a commodities business, so the companies that do it best are the ones that do it more efficiently."
"Some people will be lost, but we'll also see some people reapplied in the larger company," Smolinski said.
Chicago-based Amoco earned $2.7 billion on $36.3 billion in revenue in 1997, while BP posted a profit of $4.6 billion on $71 billion in revenue.
BP will control 60 percent of the newly combined company, which will be led by BP Chief Executive John Browne. BP Chairman Peter Sutherland and Amoco Chairman Larry Fuller will be co-chairmen of the board.
After completion of the merger, Amoco shares no longer will be traded on the New York Stock Exchange. BP Amoco ADRs will be traded in their place.
Terms of the deal stipulate a $1 billion termination fee if either company withdraws from the merger agreement.
-- by staff writer John Frederick Moore