Oil giant

BP Amoco

(BPA)

said Tuesday that it has agreed to buy motor-oil manufacturer

Burmah Castrol

(BURMY)

for 3 billion pounds ($4.7 billion) in an all-cash deal.

London-based BP Amoco, the world's third-biggest oil company, said it has agreed to pay 16.75 pounds per share for Burmah Castrol, a 74% premium over the company's share price at Friday's close, before the companies disclosed merger talks were under way.

BP Amoco said it expects to shed 1,700 jobs and save $260 million a year by 2003 as a result of the merger, and it will take a $390 million charge this year to pay for the combination.

BP Amoco shares on the

London Stock Exchange

dropped 5 pence, or 1%, to 544 pounds. Burmah Castrol shares soared on the news, jumping 323 pence, or 26%, to 15.68 pounds.

Burmah Castrol's main asset is its best-selling Castrol motor oil, which will now become BP Amoco's leading lubricants brand.

"Put simply, the combination will add millions of new customers worldwide and give BP Amoco access to emerging markets where we currently have a limited presence," said BP Amoco Chief Executive Sir John Browne in a statement. "It will make Castrol products available to our own massive customer base worldwide, including commercial and industrial users. The result will powerfully strengthen our existing business and give us entry to new markets that offer immense potential for continuing growth."

BP Amoco, which has been without a major motor-oil brand since it lost control of the Mobil One brand in December as part of another deal, will sell the Castrol brand through its 28,000 gas stations.

BP Amoco is attempting to gain regulatory approval for its $29 billion deal to acquire

Atlantic Richfield

(ARC) - Get Report

.