BP Amoco Case Group 1 AM Edits
BP/Amoco Merger Case
Group 1
Keshavaraja Alive
Stephen Felkins
Therese Jackson
Andrea Marrical
Eric Weiss
Executive Summary
Prior to the merger between BP and Amoco in 1998, both companies had very similar operating characteristics and performance. Both companies engaged primarily in the same three businesses and experienced close to the same percentages of revenue and percentages of operating income for each of those businesses. A key difference however waswere that BP concentrated their operations predominantly in the United Kingdom and other parts of Europe whereas Amoco concentrated their operations heavily in the United States. Furthermore, before 1992, BP experienced drastically declining performance, but since then had done a great deal of restructuring in order to restore the profitability of the business. Earnings growth, ROCE growth, and investor confidence were at very high levels prior to the merger. Amoco, on the other hand, had experienced lagging financial performance in comparison to the rest of the industry from 1992 to 1997. The incentive programs for executives prior to the merger were quite different for both BP and Amoco. The compensation for Amoco’s executives were higher in comparison to that of BP’s not only through base salaries and bonuses, but also through unrealized stock options. BP believed that performance based measures should be a large part of their incentive program for executives. Amoco meanwhile focused their incentive program for executives around a competitive base salary. Both companies included stock options as part of their incentive programs, with the difference being awarded based on personal investment vs. executive rank for BP and Amoco respectively. The strategy after the merger for BP Amoco was to identify those assets that were performing exceptionally and focus more on them while at the same time identify the poorly performing assets and divesting them. The goal
Group 1
Keshavaraja Alive
Stephen Felkins
Therese Jackson
Andrea Marrical
Eric Weiss
Executive Summary
Prior to the merger between BP and Amoco in 1998, both companies had very similar operating characteristics and performance. Both companies engaged primarily in the same three businesses and experienced close to the same percentages of revenue and percentages of operating income for each of those businesses. A key difference however waswere that BP concentrated their operations predominantly in the United Kingdom and other parts of Europe whereas Amoco concentrated their operations heavily in the United States. Furthermore, before 1992, BP experienced drastically declining performance, but since then had done a great deal of restructuring in order to restore the profitability of the business. Earnings growth, ROCE growth, and investor confidence were at very high levels prior to the merger. Amoco, on the other hand, had experienced lagging financial performance in comparison to the rest of the industry from 1992 to 1997. The incentive programs for executives prior to the merger were quite different for both BP and Amoco. The compensation for Amoco’s executives were higher in comparison to that of BP’s not only through base salaries and bonuses, but also through unrealized stock options. BP believed that performance based measures should be a large part of their incentive program for executives. Amoco meanwhile focused their incentive program for executives around a competitive base salary. Both companies included stock options as part of their incentive programs, with the difference being awarded based on personal investment vs. executive rank for BP and Amoco respectively. The strategy after the merger for BP Amoco was to identify those assets that were performing exceptionally and focus more on them while at the same time identify the poorly performing assets and divesting them. The goal