Introduction and The oil industry remains in a period of significant of change: Background
3 years ago there were three super-majors in the oil industry, now there are five;
Chevron recently completed the takeover of Texaco;
Phillips and Conoco have announced a zero-premium merger, which is yet to close;
Smaller companies continue to combine - excluding the bigger transactions, there have been 70 transactions in the recent past in our industry totalling some $70 billion As a catalyst for discussion, this paper will cover the following areas:
Highlights of BP's M&A experience over the last 3 years,
The strategic rationale behind BP's acquisitions, in particular Amoco and Veba,
How BP planned and executed these transactions, and
he role of M&A in the delivery of BP's strategy.
Mergers and Inorganic growth has played an instrumental role in BP's success. It has been a key focus of BP's Acquisitions - activities for the last four years. Success has been underpinned by a clear strategy, sound processes Strategy in Action and a solid financial framework. Through inorganic growth, BP has gained:
Material, long-life resources,
Number one market positions in U.S. retail, U.S. gas and European retail,
5 global brands,
A materially shifted portfolio (oil to gas - 40%+ and growing).
BP has also improved its position with:
A restructured cost base,
Economies of scale,
Enhanced returns through upgrade - disposal of $19 billion non-strategic/bottom quartile assets from the post-acquisition portfolio, and
One "Group" team – "best of the best" (very best people from the heritage companies).
The BP - Amoco merger in 1998, at the time, the largest industrial merger ($110 billion) ever, repositioned BP as a super-major and initiated a period of major consolidation in the industry. BP followed it with $45 billion of acquisitions - Arco, Vastar, Mobil downstream in Europe, Castrol, Erdoelchemie, Solvay and Veba to increase the scale and reach of the new company:
A total of $125 billion of deals moving BP's enterprise value close to $200 billion,
The combination of these deals along with BP's divestment activity has delivered a more focused organization with robust financial performance
$6 billion of cash cost reduction,
Upstream volume growth of 5.5% per annum, BLOCK 4 - - FORUM 24 227
Mid-cycle earnings growth over the last three years of 34%,
Sector leading ROACE.
History Heritage BP: Prior to the mergers and acquisitions, BP had a high performing business in a fragmented market.
The majority of the world's reserves (80%) were, and are, off limits to the private sector. The remaining 20% were fragmented among more than 12 players.
It was evident BP needed scale and reach to compete with Exxon and Shell; econ