British Petroleum, Ltd

28 Pages Posted: 21 Oct 2008

See all articles by Susan Chaplinsky

Susan Chaplinsky

University of Virginia - Darden School of Business

Luann J. Lynch

University of Virginia - Darden School of Business

Paul Doherty

affiliation not provided to SSRN

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Abstract

This case is one of a pair of cases used in a merger negotiation. It is designed to be used with “Amoco Corporation” (UVA-F-1262). One-half of the class prepares only the Amoco case, and one-half uses this case. BP and Amoco are considering a merger, and are in the process of negotiating a merger agreement. Macroeconomic assumptions, particularly forecasting future oil prices in an uncertain environment, and assumptions about Amoco's ability to reduce exploration and production costs make Amoco's future cash flows difficult to predict.

Excerpt

UVA-F-1263

BRITISH PETROLEUM, LTD.

Our strategy for growth is clear, and the results demonstrate our commitment to disciplined performance.

—E. J. P. (John) Browne

A year and a half earlier, Sir John Browne entertained thoughts of combining with Amoco Corporation's petrochemical division, but, uncertain of the benefits, he backed away. Now, in the summer of 1998, Browne renewed his interest in Amoco. In his four years as British Petroleum's (BP's) group chief executive officer (CEO), Browne had been a relentless foe of waste and a strong advocate of shareholder value. Convinced that the creation of a “supermajor” and a new platform for growth was the next frontier for BP, he was intent on acquiring Amoco in what would be the largest merger ever. The irony of the situation was not lost on his counterpart at Amoco, H. Laurance Fuller, chair and CEO. Agreement to the pending merger proposal from BP would begin to reassemble the former Rockefeller empire broken up in the landmark “trust bust” case of 1911. At that time, Rockefeller's holdings were carved up into 33 new public companies, which included Standard Oil of New Jersey (Exxon), New York (Mobil), California (Chevron), Indiana (Amoco), Ohio (Sohio), Continental Oil (Conoco), and Atlantic Refining (ARCO). BP had previously acquired Sohio in 1988. Where only recently size was viewed as an impediment to good performance, suddenly there seemed to be a resurgence of the idea that “bigger was better.” Since the late 1980s, however, there had been few large mergers in the oil industry—certainly nothing approaching the scale contemplated by a combination of Amoco and BP. Moreover, the industry had experienced considerable downsizing in the 1980s and early 1990s in response to perceived problems of overcapacity. Now it would take a concerted effort to convince shareholders that “bigger was better” when most of the past decade had featured a “less is more” and fervent cost-cutting orientation.

. . .

Keywords: mergers and acquisitions bargaining and negotiating valuation

Suggested Citation

Chaplinsky, Susan J. and Lynch, Luann J. and Doherty, Paul, British Petroleum, Ltd. Darden Case No. UVA-F-1263, Available at SSRN: https://ssrn.com/abstract=1279282

Susan J. Chaplinsky (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4810 (Phone)
434-243-7676 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/chaplinsky.htm

Luann J. Lynch

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4721 (Phone)
434-243-7677 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lynch.htm

Paul Doherty

affiliation not provided to SSRN

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