BP Amoco buys Castrol for $ 4.7 bn

BP Amoco buys Castrol for $ 4.7 bn
REUTERS

LONDON, MARCH 14: British oil giant BP Amoco Plc agreed to buy UK lubricants firm Burmah Castrol Plc on Tuesday for three billion pounds ($4.7 billion) in cash to get hold of the Castrol brand name.

BP Amoco said it expected the takeover to produce annual pre-tax cost savings of $260 million by 2003 and that it would take a $390 million charge in 2000 to implement the savings. The head of the BP Amoco's new global lubricants division, David Baldry, said the takeover would result in 1,700 job cuts worldwide and would start to enhance earnings in 2001.

The oil group expects to dispose of Burmah's speciality chemicals businesses. "It is evident that we will now enjoy a significant presence on every continent," Baldry said of the lubricants market.

He told a news conference in London that the group would move to the number-two slot in lubricants in Europe with 13 per cent market share compared with six per cent previously. Analysts said the deal was a good one for both BP Amoco and Burmah's shareholders. They said the Burmah Castrol purchase will return BP Amoco to a leading lubricants position in competition with its old partner Mobil.

Such a deal has been mooted ever since the European Commission required the unravelling of a BP Amoco/Mobil Corp joint venture as a condition for allowing last year's $ 82 billion merger of Mobil and Exxon Corp. "It plugs a gap for BP and I don't think they are overpaying," A E Sharp Securities analyst Philip Morrish said.

Since then, BP Amoco has been without a worldwide recognised lubricants brand in a business where well-recognised brands can mean high margins and big profits. "Castrol is one of the great lubricants brands of the world," BP Amoco Chief Executive John Browne said.

Analysts also said Burmah shareholders were likely to be keen to get that much cash for their shares in a so-called "old economy" firm and that they would likely re-invest it in the red hot technology sector. "Burmah shareholders are likely to want to use the cash to invest in other sectors of the economy," HSBC Securities analyst Elliot Zissman said.

Shares in the chemical, building materials and other "old economy" stocks have been falling for the last two years because they are out of favour with investors. "There is no way that in the near-term time horizon you would have seen 16.75P A share for Burmah Castrol," Morrish said, adding he saw more takeovers in the wings.

BP's Browne said the move would add millions of new customers to BP Amoco worldwide and give it access to emerging markets, as well as making Castrol products available to BP Amoco's own massive customer base. Analysts also said the sale of Burmah's speciality chemicals businesses could net BP Amoco another 600 to 700 million pounds.

The deal may raise competition concerns at the European Commission and the US Federal Trade Commission (FTC). BP Amoco is already involved in a complicated FTC investigation which threatens to derail its $27 billion bid for U.S. Oil firm Atlantic Richfield Co.

Burmah Castrol had operating profit before exceptional items of 284 million pounds in 1999, of which 213 million was contributed by Castrol and 79 million by Burmah Castrol's speciality chemicals business. Advisers to the deal are Morgan Stanley & Co td acting for BP Amoco and J Henry Schroder & Co Ltd as well as Wasserstein Perella & Co Ltd for Burmah Castrol.