Mergers and acquisitions Burmah Castrol

Burmah Castrol strategy presentation - London, March 14, 2000

Disclaimer
The Directors of BP Amoco p.l.c. accept responsibility for the information contained in this document and, to the best of their knowledge and belief (having taken all reasonable care to ensure that such is the case), such information is in accordance with the facts and does not omit anything likely to affect the import of such information. However, in respect of information compiled from the 1999 preliminary results for Burmah-Castrol PLC, the Directors of BP Amoco p.l.c. take responsibility only for the correctness and fairness of its reproduction and presentation. The text of this presentation and the associated slides should be read in conjunction with each other and with the announcement of the offer dated 14 March 2000 by BP Amoco p.l.c. and Burmah Castrol PLC. This presentation and the associated slides contain statements, particularly those regarding costs savings, disposals, dividends, earnings, growth, margins, performance, strategy, synergies and volumes, which are or may be forward looking statements and actual results may differ materially from those expressed or implied in such statements. Neither the text of this presentation, nor the associated slides, constitute an offer or invitation to purchase any securities or a solicitation of an offer to buy any securities, pursuant to the offer or otherwise. The offer will not be made, directly or indirectly, in or into Canada, Australia, New Zealand or Japan. The offer will not be capable of acceptance from within Canada, Australia, New Zealand or Japan and doing so may render invalid any purported acceptance. The availability of the offer to Burmah Castrol PLC shareholders who are not resident in the United Kingdom may be affected by the laws of the relevant jurisdictions. Burmah Castrol PLC shareholders who are not resident in the United Kingdom should inform themselves about and observe any applicable requirements.

Sources and Bases of Information

The information in slides 18, 20, 22, 24, 26, 28, 30, 31 is derived from internal sources.

Burmah Castrol deal strategy presentation introduction by Sir John Browne

Ladies and Gentlemen Good morning and welcome. Thank you for joining us at such short notice. Can I also welcome all the people who are watching this on our webcast - including many members of staff. As you'll be aware BP Amoco have announced today an agreed all cash offer for Burmah Castrol at a price of 16.75 a share, which represents a premium of around 60 per cent over the average price of the last three months .. and a total cost of 3 bn. (The offer represents a premium of 74% over the closing price per share of 965p of Burmah Castrol plc shares on 10 March 2000.) Let me first introduce Jonathan Fry, the Chairman of Burmah Castrol and David Baldry, one of our Group Vice Presidents who will be taking you through the details of the transaction. We intend to appoint David as the head of the new Castrol division which will cover all BP Amoco's activities in lubricants. For BP this represents a significant further step in the development of the downstream strategy since it became obvious 15 months or so ago that the BP Mobil joint venture would come to an end.

It gives us a tremendous opportunity to deliver additional growth in a business principally focused towards the consumer. Castrol is one of the world's great brands. Castrol brands have a global market share of 5 per cent in the lubricants business and are a leading brand in over 50 countries around the world. This acquisition also brings us some great people - people who have developed the Castrol brand and created that leading position. We believe they will add significantly to our management and our base of skills and knowledge. As the announcement makes clear, we intend to dispose of Burmah Castrol Chemicals business. In all the other aspects of the business - distribution, supply, administration and overheads we see significant synergies and we expect to deliver cost savings of at least $ 260 m pre tax per annum. The costs of implementation are expected to be around $390 million , which we will take as a charge during 2000, and we expect full payback within 2 to 3 years. The scale of the potential synergies is important but they are not the main driver behind this transaction. The attraction is growth. Castrol has a record of growing its sales faster than the market, particularly in emerging economies such as India, China and Latin America. The combination gives us access to millions of additional customers world-wide and access to some of those markets where we currently have a limited presence. It will make Castrol products available to our own extensive customer base world-wide, including our commercial and industrial users. In terms of geography the fit is excellent. We believe that the value which we're putting on the company, including the premium, is fully justified by the synergies. We're buying an excellent business which gives us a platform for growth and which fits extremely well with our conception of the evolving market - the shift to gas, to clean fuels and to high quality oil products and services. We see this transaction as one further step in a pattern of growth for the future, and we'll be talking about all that in more detail over the next few months. As you will be well aware, BP and Burmah Castrol have had a long and close history. It was after all the Burmah Oil company which largely financed William Knox D'Arcy when he went to explore in Persia 95 years ago. We've had many links since then and a very good working relationship ... so I'm delighted that we've been able to reach the agreement announced today.

Platform for growth

Good morning, Ladies & Gentlemen. I am delighted to have this opportunity as Chief Executive Officer "to be" of our new global Lubricant organisation to build on what John and Jonathan have already said about this tremendous platform for growth, benefiting from great brands with great people within a performance driven culture - a real opportunity to drive top line revenues right across the existing BPAmoco Marketing organisation. This deal combines Castrol, as one of the world's best lubricants marketing companies, with BP Amoco's proven track record in performance management. The deal also supports the implementation of key aspects of our Downstream strategy which, in addition to earnings growth, are to expand our customer base, broaden our customer offer and optimise our manufacturing capacity. What then does all this amount to?

Brand and marketing expertise

It means, as John said, that following this combination, we will have a company with a leading brand , and with universally acknowledged marketing expertise, which is also competitively distinctive. We will have real global reach and scale and the means to accelerate our entry into exciting new growth territories. And all this will be over and above the very significant cost synergies which themselves underpin this transaction. I will now go into further detail around each of these three key strategic drivers and the powerful commercial logic for this combination, beginning with Brand and marketing expertise.

Castrol have today one of the best global lubricants brands which is used by a significant number of customers. Let me be quite clear, Castrol will become the flagship brand of the newly formed global lubricants division, continuing to drive customer-focussed programmes around the world.

Castrol's brand rests on far more than its well-known advertising, and its involvement in such events as Formula One. From my standpoint, it symbolises marketing excellence based on a passion for meeting customer needs. Castrol also have a formidable in-house R&D capability to provide technological solutions to their customers. Perhaps the best example is their success in developing their top-of-the-range synthetic lubricant products.

The strategic marketing skills which Castrol brings to the new Division will be enhanced by our ability in future to offer a full range of products to both our customer bases - marketing (for example) BP Amoco fuel to Castrol customers, and Castrol lubricants to BP Amoco customers. One exciting early opportunity will be to utilise our 28,000 service stations around the world, as a shop window for Castrol's full product range. And looking to the future, we also expect to form innovative marketing approaches, providing wider solutions for our customers through service-orientated offers and E-commerce activities.

Both Castrol and BP Amoco have, over many years, enjoyed strong customer relationships, which have underpinned their success. As our customers become increasingly global in nature (and thus in their procurement habits), we can now be all the more flexible in our efforts to support them wherever they need us. BP Amoco, for example, has over the past year developed a close working relationship with General Motors and Ford, while Castrol has announced ground-breaking alliances with both BMW and Hyundai. The new lubricant business will be able to benefit from these global alliances as well as other commercial and dealer relationships.

And finally under this brand and marketing section, one of the truly exciting aspects of this deal is the major infusion of Castrol marketing and sales people into the wider BP Amoco organisation. To put a figure on this, we shall gain some 4,000 additional marketing and sales staff from Castrol. Coupled with our own customer-facing staff this will be a truly world-class marketing team.

Global reach
The second strategic driver - and perhaps the most striking - is the global fit of the two enterprises both in a sector and in a geographic sense.

First, I'll show you our global position today as BP Amoco before any combination with Castrol. Although we have some significant strengths in parts of the Southern Hemisphere, with a moderate position in Europe, we are under-represented in lubricants in the Americas and other key growth areas.

So let's see what impact the combination has in Europe. BP Amoco have recently agreed on the extraction of its share of the Lubricants Joint Venture with Mobil. The outcome of that transaction will leave us, firstly, with some 6 per cent of the European market, and in fourth position overall from a market share perspective, and secondly, with a product slate biased towards the commercial automotive sector.

The new enterprise takes us to number two in Europe, with an overall market share of some 13 per cent and a far more balanced sector portfolio.

Looking again at the world map, with Europe now reflecting the newly combined 13% market share, let's move across the Atlantic and look at North America where neither BP nor Amoco had a material lubricants position.

Conversely, Castrol have had great success in developing their position in the US and Canada over the past decade. And from now on our company will be one of the leading US coast-tocoast marketers of lubricants, matching our already strong fuels position.

Looking at the rest of the world, the Castrol brand is present in more than 50 countries and this new combination enables us to achieve critical mass in many key markets, but perhaps, most excitingly, it is also present in high growth areas such as India, China and parts of Latin America.

Looking at the complete global picture, post transaction, it is evident that we will now enjoy a significant presence on every continent. And importantly, if I were to show you similar comparisons across the different sectors of the lubricants business, the same glove-like fit would be evident. As lubricants represents a relatively low-cost market entry vehicle, our new Castrol business will create many new growth options for the wider downstream organisation to consider. So, be in no doubt, this new combination offers up substantial opportunities for further top line growth. [And you can expect to hear more about our plans once we have had the time to develop them in more detail.]

Cost synergies
As I am sure you are aware, no BP Amoco presentation would be complete without talking about cost synergies and these are indeed significant.

The savings are driven chiefly by the elimination of duplication in the areas of blend plants, distribution and back office support services. We are confident we can achieve cost synergies of some 260 million dollars per annum pre-tax by the year 2003. This equates to a 7 per cent reduction in the combined lubricants cost base. 50 per cent of these synergies will come from a reduction in staff - representing some 1,700 jobs worldwide. All this has to be set against the total cost of restructuring which we estimate will amount to some 390 million dollars pre-tax. And in terms of shareholder value, the transaction will be accretive to pro forma earnings-per-share in 2001.
(This should not be interpreted to mean that earnings per share in 2001 will necessarily be greater than those for 2000.)

Summary
So that summarises the principal reasons why we believe this deal is so compelling.

I have described the nature and commercial logic of this very exciting transaction which sees a union of marketing and performance excellence. It brings with it numerous new growth opportunities far in excess of what each of us could have achieved on our own, which together with the attractive synergies, will drive our earnings growth into the future. Personally, I believe this is the most exciting marketing opportunity I have seen in my career and I am greatly looking forward to being part of this world class team.