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The Times: Chillier era for industrial mega-mergers

July 25, 2007
Carl Mortished, European briefing

His first appearance before the media and his first question, and Tony Hayward, BP’s newly installed chief executive was swift in killing off the constant dribble of rumours about Royal Dutch Shell.

It seems a no-brainer; a company that has suffered BP’s recent internal turmoil would be unlikely to embark on the biggest merger in corporate history. There is an even better reason why Mr Hayward might hesitate to embrace the Dutch: BP is still struggling with its marriage to the Yanks.

Nine years after the announcement of the takeover of Amoco, BP is still trying to integrate the American business and yesterday Mr Hayward spoke about the introduction throughout BP of an “Operating Management System”. It was the lack of such standard operating procedures for safety throughout BP’s refineries that created the conditions for the Texas City disaster in 2005. BP’s portfolio of US fuel plants was assembled through the purchases of Amoco in 1998 and Atlantic Richfield in 1999, but, even after the mergers, they were left to be run as largely autonomous units. When British Petroleum changed its name to BP Amoco, the joke about pronunciation of the new name was that the “Amoco” was silent. It might be more appropriate to say that “Amoco” was ignored.

It is astonishing in retrospect that BP embarked on such vast industrial mergers without a carefully thought-through plan of integration. This was not the takeover of advertising agencies – messy groups of people who can be flattered or cajoled into cooperation. BP took over thousands of hectares of dangerous plant and equipment, much of it in need of constant repair and upgrading. The legacy of those problems is being felt today with a $4 billion (£1.9 billion) fall in BP’s half-year operating cashflow, attributed to repair and maintenance issues.

Are industrial mega-mergers still possible? Will Repsol of Spain fall victim to a takeover and for how long will Italy’s ENI remain independent? Deals are possible, but with the need for such detailed planning it is doubtful that they could ever be negotiated in secrecy. Both Exxon and Total took over their national rivals, Mobil and Elf, respectively. Both mergers have been successful, but there are obvious differences with BP and its American adventures: Exxon was a highly centralised company with a disciplined command-and-control approach to operations. It simply absorbed Mobil.

Culture is terribly important and, if the truth were known, Americans never liked the idea of a British oil company pushing and shoving in their playground. In the case of Total, a fellow national, Elf, was swallowed with the encouragement of the French Government. Statoil, too, is adopting the insular but safe approach of buying its Norwegian sister, Norsk Hydro.

Since BP’s big takeovers, the world has become a more insecure place, energy is more than ever politicised and governments, even in the capitalist West, want national champions. In that light, a second Anglo-Dutch merger looks an extraordinary challenge. It took Royal Dutch Petroleum a century and a boardroom scandal to complete its takeover of Shell Transport & Trading. Shell is now a Dutch company and it might think twice before reopening negotiations across the North Sea.

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article2134353.ece

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