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Tuesday, 14 March, 2000, 09:40 GMT
BP buys Burmah Castrol
BP petrol station
BP could face opposition over the deal
Oil giant BP Amoco has agreed to buy Burmah Castrol for 3bn.

The deal will lead to the loss of 1,700 jobs worldwide.

BP said the lubricants businesses of the companies would be merged to form a new division run by a management team drawn from both companies and based at the UK offices of Burmah Castrol in Swindon.

BP Amoco said the offer was subject to clearance from competition authorities.

'Great brand'

The offer is 74% higher than the closing price for Burmah Castrol shares on 10 March, the day before the companies announced they were in talks.

BP Amoco said the combined businesses would lead to cost savings of more than 160m a year by 2003.

Castrol sign
The deal gives BP Amoco the Castrol brand
"Castrol is one of the great lubricants brands of the world," said BP Amoco chief executive John Browne.

He 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 its own massive customer base.

A deal has been on the cards since the European Commission required the unravelling of a BP Amoco/Mobil joint venture as a condition for allowing last year's $82bn merger of Mobil and Exxon.

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.

Anti-trust concern

Analysts said, however, that the takeover of Burmah Castrol could be a cause of anti-trust concern, since both companies were dominant in Europe.

"It's not a done deal - they could run into problems with the European Commission," Williams de Broe analyst Peter Hitchens said.

Castrol production
Burmah Castrol employs 18,000 people worldwide
Burmah Castrol had a turnover of nearly 3bn in 1999, with operating profits of 284m, excluding exceptional items.

With 18,000 worldwide employees, it has operations in 55 countries.

London-based BP Amoco has 80,400 employees worldwide, and had 1999 revenues of more than 63bn.

Scottish end

BP Amoco believes the job losses will have little impact in Scotland, either at its Grangemouth refinery or in its North Sea oil interests.

Although registered in Glasgow, Burmah Castrol's main UK site is in Swindon. It says it is too early to say how operations in Scotland will be affected.

Burmah has a computer software company outside Edinburgh and a factory in Bonnybridge.

Analysts believe the price of 16.75 a share represents excellent value at a time when "old economy" stocks are falling as investors prefer to put money into technology shares.

"There is no way that in the near term time horizon you would have seen 16.75 a share for Burmah Castrol," said A E Sharp Securities analyst Philip Morrish, adding that he saw more takeovers in the wings.

Burmah Castrol shares jumped on news of the deal, and were up 330p to 15.75 by mid-morning.

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See also:

02 Feb 00 | Business
BP deal for Arco blocked
10 Aug 99 | The Company File
BP Amoco reports gushing profits
01 Apr 99 | The Economy
Lubricating the oil industry
30 Dec 98 | The Company File
Green light for BP Amoco
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