Two are better than one, but one's better than most
15 Jan 2000
To the worrying sound of creaking economies around the world, last month BP brought off one of the biggest surprises in corporate history with news of its merger with the American oil major Amoco. An acquisition in all but name, the deal (see page 5) will create the UK's largest company and lift BP into the big three of oil players alongside Shell and Exxon. Although the scale of the merger took the City's breath away - the new company BP Amoco will have a market value of some £67billion, with a turnover greater than the GDP of many developed countries - it is in reality the latest in an increasingly long line of corporate restructurings that we have seen at all levels of the process industries.
The latest crop of changes on the supplier side of the sector are on page 10 this month, while the on-off courting of SmithKline Beecham by Glaxo Wellcome is still very much on the cards to deal the pharmaceutical industry a full house of famous names under one, very big banner.
The thinking behind all these mergers, acquisitions, hostile or friendly takeovers, is largely the same. Grow by acquisition, and cut costs by eliminating duplication of resources (for human resources, read redundancies).
For companies that operate on a global basis, as do most of the major oil and chemical operators, such a strategy calls for some pretty nimble footwork to avoid over-exposure in the weaker economies around the world. As we are currently seeing, an economy that was strong yesterday could be on its knees tomorrow. In this respect the BP-Amoco tie-up seems on safe ground for the moment. Both are strong in their respective domestic areas of Europe and the US, while not being too exposed in the present troublespots of Russia and the Far East.
Speaking about the merger, BP Chemicals' chief executive Bryan Sanderson said: `In terms of scale, it's a big step towards the globalisation and consolidation that all of us keep talking about.' He foresees the time, `in a few years', when `five or six really heavyweight players' will dominate the chemical industry, `much like the oil industry'. But, given the current vogue for plant swaps, joint ventures and the like, consolidation on that scale is unlikely to happen overnight. There are now too many strings to too many bows to ward off all but the most determined predator.
