BP Amoco to Buy Exxon Mobil's Interest in European Venture

The deal paves the way for European approval of the Exxon-Mobil merger.
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Updated from 11:19 a.m. EST

BP Amoco

(BPA)

said on Tuesday it had agreed to pay about $1.5 billion to buy out the 30% interest in the Mobil-BP Amoco European fuels joint venture held by

Exxon Mobil

(XOM) - Get Report

, paving the way for European approval of the Exxon-Mobil merger.

The companies said in a statement that the deal came in response to the

European Commission's

demand that they effectively dissolve the Mobil-BP Amoco European fuels and lubricants joint venture.

By midday Tuesday, Exxon Mobil shares were up 11/16 to 84 9/16. BP Amoco was off 9/16 at 59 7/16. (Exxon Mobil closed unchanged at 83 7/8 while BP Amoco closed down 3/4, or 1%, to 59 1/4.)

Under the terms of the deal, BP Amoco will also receive certain pipelines servicing Britain's Gatwick Airport.

The companies added that the partnership's lubricants assets would be divided according to their equity stakes -- Mobil 51% and BP Amoco 49%.

Fadel Gheit, oil and gas analyst for

Fahnestock & Co.,

said the deal, which is subject to various approvals, came as no surprise and that the price seemed fair.

"This was expected. It was part of the agreement in order to secure the approval of the European antitrust commission," said Gheit, who has a buy recommendation on Exxon Mobil and a hold on BP Amoco.Fahnstock has not done any underwriting for either of the companies.

Gheit said that any future hurdles to the merger should be cleared easily, adding that he expected the union, considered to be the biggest industry event since the breakup of

John D. Rockefeller's Standard Oil Trust

in 1911, to be completed in about six months.

He noted that the major question mark hanging over the industry concerned Amoco's proposed $27 billion takeover

of Atlantic Richfield

(ARC) - Get Report

.

"I'm still betting that it will go through," Gheit said. "(But) Arco may have to sell more assets."

The

Federal Trade Commission

is thought to be concerned that a BP Amoco takeover of Arco would give the British oil giant too big a holding in Alaska North Slope crude.