The $48 billion merger of British Petroleum Co. plc and Amoco Corp. will create a broad plastics company within the newly created oil and gas giant.
The new firm, BP Amoco plc, will be the world's third-largest polypropylene maker, trailing only Montell NV of Hoofddorp, the Netherlands, and Targor GmbH of Ludwigshafen, Germany. Expansions slated for next year are expected to move the company past Targor and into second place. BP Amoco also will be the global leader in production of key raw materials for polyester and ABS.
Amoco commands 2.6 billion pounds of PP capacity, including 1.7 billion pounds in North America. BP holds a 49 percent share in Appryl snc, a Paris-based joint venture with Elf Atochem that produces 900 million pounds of PP annually.
Already, Amoco and BP each have announced sizable additions to their PP businesses for 1999. Amoco will add 550 million pounds of PP capacity in Alvin, Texas, early next year, while BP's Appryl JV will open a 660 million-pound-per-year plant in Grangemouth, Scotland, in late 1999.
The Aug. 11 deal, touted as the world's largest-ever industrial merger, marries companies with combined 1997 sales of $108 billion. Combined profit was $7.3 billion.
London-based BP will own 60 percent of the venture, with Chicago-based Amoco owning the remainder. The new company, to be headquartered in London, will be the world's third-largest oil maker and the largest oil and gas producer in the United States.
Amoco already was the world's fourth-largest PP maker, as well as the global leader in paraxylene and purified terephthalic acid, key ingredients used to make polyester. BP's European capacities for polyethylene, 2.6 billion pounds, and polystyrene, 800 million pounds, make it a sizable player in those markets as well. BP also is involved in a joint venture with Dow Chemical Co. to market their combined metallocene-like technology.
Amoco holds the top spot globally in polybutene, while BP's acrylonitrile technology is used in 90 percent of the world's acrylonitrile manufacturing. In addition, BP operates the world's largest acrylonitrile plant, in Green Lake, Texas. Acrylonitrile is a key ingredient in ABS and other styrenic products.
In a joint statement, BP Chief Executive Officer John Browne and Amoco Chairman Larry Fuller said that as international competition increases, the best investment opportunities will go to companies with the size and financial strength to take on large-scale projects that offer ``a truly distinctive return.''
Browne will be CEO of the new firm. Fuller will serve as deputy chairman and executive director until his retirement in the first half of 2000.
The merged company plans to cut 6,000 jobs globally, but BP spokesman Tom Koch said very few of those reductions would come from the new firm's plastics and chemicals businesses.
``There's really not that much of an overlap when you combine the chemical operations,'' Koch said in an Aug. 13 telephone interview from New York. ``They literally deal in different kinds of chemicals.''
The new company will be on the leading edge in PE and PP technology, according to Bob Unterreiner, an industry consultant who worked in Amoco's PP business and its former PS and high density PE businesses for 23 years.
Unterreiner added that the deal may clear the way for BP Amoco to build a North American PE facility.
``Long-term, [BP Amoco] may come into North America with a new PE plant, but right now isn't a good time because profitability is terrible,'' Unterreiner said. ``BP will rely on Amoco's chemical experience to guide them in North America.''
Andrew Stevens, a PP market analyst with Phillip Townsend Associates Inc. in Houston, said the merger will benefit both companies, but probably will not directly affect slumping PP prices.
``BP had been looking at getting into polypropylene, so this is a tremendous in for them,'' Stevens said. ``Global players like Dow, which is going into polypropylene, are looking at being global polyolefins suppliers. A lot of accounts purchase both polypropylene and polyethylene, so [suppliers] could consolidate sales.''
With $12.8 billion in combined 1997 sales, BP Amoco will enter the market as the third-largest chemical company in the world, trailing only Royal Dutch/Shell and BASF. BP Amoco will operate 28 chemical manufacturing plants — 11 in Europe, 10 in North America, six in Asia and one in South America.