The Sale of Burmah Castrol

to BP Amoco
Gerry Johnson
In 1999, the management team of Burmah Castrol, the lubricants and chemicals business, led by its
CEO Tim Stevenson, decided to recommend to the corporate board the sale of the company to BP
Amoco. In what follows, Stevenson explains how the company arrived at the point of considering this
option, and why the board decided to take it.
ll l

The Burmah Oil Company was founded in1886 by Scottish entrepreneurs interested in exploiting newly
found oil deposits in Burma. Success there was followed by a milestone investment in an exploration
concession across a substantial area of Iran acquired from the Shah. That company, then called the Anglo
-Persian Oil Company, later became British Petroleum (BP). Burmah held a major shareholding in BP
right through until the early 1970s. Indeed, after a long period operating effectively as an intermediateholdingcompanyforBPshares,themanagementofBurmahinthe1960susedthevalueof the shares as
collateral to embark on an ambitious plan to turn Burmah into both a fully integrated oil
companyandasubstantialconglomerategroup.BusinessesboughtincludedCastrolandSignalOil and Gas; other
interests included major exploration licences in the North Sea, a substantial fleet foil tankers and a raft of
other activities, including high-street retailer Halfords, various chemicals companiesandQuintonHazell,anautomotivecomponentsupplier.Thisperiodofexpansionwasbrought to an abrupt
halt by the recession consequent on the Yom Kippur war in 1974. Much of the companys subsequent
history is the story of how this expansionist drive was gradually unwound, and a new corporate approach
and concept developed.

THE STRATEGIC DEVELOPMENT OF BURMAH CASTROL

Tim Stevenson explained how the portfolio of the Burmah Castrol businesses developed and changed
fromthe1960s:
First there was a process of divestment: selling Signal Oil and Gas, selling the tanker fleet,
renegotiating the Bahamas terminal and selling other peripheral companies like the
automotive parts retailer, Halfords and Quinton Hazell.
This case was prepared by Professor Gerry Johnson, University of Strathclyde Graduate School of Business, based on
discussions with Tim Stevenson, the past CEO of Burmah Castrol, and on published sources. The author is published with the
permission of BP Amoco. It is intended as a basis for class discussion and not as an illustration of either good or bad
management practice. Not to be reproduced or quoted without permission.

The Sale of Burmah Castrol to BP Amoco

Overtime, and as the process of slimming down progressed, the re- emerged the concept at twopronged Burmah Castrol, consisting of related businesses. One prong was the Castrol business

which, throughout all this turmoil, was continuing to develop as a very successful global business
with an increasingly powerful brand. The other prong was Chemicals, which it was planned could
provide a substantial counter weight for Castrol. Fromthelater1970s/early1980s onwards, a portfolio
of speciality chemicals businesses was put together, taking some of the businesses inherited from the
past as the foundation and adding to them by buying in high-quality speciality businesses as
additions to the portfolio. The emerging rationale for Burmah Castrol that resulted was that the
Groups business was the sale and marketing of speciality
oil and chemical products. The argument was that we were good at managing Castrol and that we
would be able to demonstrate to shareholders and the market that we could also very successfully
manage chemical businesses whose style and approach to the market would be in certain key
respects similar to that followed by Castrol. We also argued that management
had skill in spotting both good managers and sound investment opportunities: the combination
would enable all the Groups businesses to prosper and grow. There was sufficient similarity in
terms of key factors for success between Castrol and the Chemicals businesses to enable senior
management to add value across the portfolio. The idea that Burmah Castrol, as slimmed down,
was a conglomerate per se was resisted.
Whilst the process of simultaneous slimming down and building up the chemical portfolio
proceeded, the markets response, as measured by improvement in the share price, was
satisfactory. Castrol continued to perform strongly.
There was, however, internal questioning, particularly towards the end of the 80s, about where
the Group was headed over the medium to long run. There was an argument that Burmah as a twolegged stool needed a third to give it, overall, an appropriate, stable shape. This led to a search for
moves that might provide such balance. Included within this search were possibilities for rendering
the Chemicals portfolio as a whole more substantial and therefore more able to sit comfortably
alongside Castrol. This process culminated in the successful hostile acquisition of Foseco in the
early 90s. The opportunity arose because Foseco had lost its way; its share price was very
depressed. In fact, as it turned out, the price wasnt quite as cheap as it might later have become,
because economic conditions continued to deteriorate after the purchase. This inevitably affected
Fosecos short-run performance to a greater extent than Burmah Castrol had anticipated. In turn, this
meant that it took somewhat longer to achieve an appropriate return on the investment than
originally planned. However, vigorous restructuring work on the business and an improved
economic environment in due course demonstrated the acquisition to have been sound. But in a
qualitative sense the acquisition of Foseco was important because it led to some serious questioning
in the market for the first time concerning Burmah Castrols overall raison dtre. Was it appropriate
for Burmah to be expanding its Chemicals businesses to such
a substantial extent? How usefully related was the Castrol business to the Chemicals businesses,
and what was the real value in having them in the same portfolio?
There were also other issues to sort out in the Chemicals businesses where some were
underperforming: work needed to be done to improve their overall operating efficiency. That was a
task that was successfully set about and delivered: significantly improved ratios were Achieved
through cost cutting and effective focus. But that was not enough. The market response was, Youve
improved the performance but what are you going to do now? When I took over As chief executive
in 1997 a clear message from some substantial investing institutions was that management should
not contemplate further substantial expansionthrough acquisitionof the Chemicals portfolio. We
dont understand why you bought Foseco. We dont understand how you think you can add value to
acquisitions of that sort.
The Sale of Burmah Castrol to BP Amoco

RECONSIDERING STRATEGY AND STRUCTURE

By the mid-1990s Burmah Castrol consisted of Castrol, blending and marketing lubricants; and
ChemicalswitharesidualFuelsretailingbusinesseffectivelythefinalrelicofthepastwhichwas
intheprocessofbeingsoldoff.Until1997CastrolandChemicalswererunastwodistinctgroups of businesses.
From 1997 onwards, for reasons explained below, the corporation was restructured into
discretebusinessunits.Exhibit1summarisestheactivitiesandperformanceofthesebusinessunits.
In 1994 Mike Dearden, then CEO of the Chemicals businesses, had undertaken a review of the
strategy and structureofthosebusinesses.Hehadinheritedasituationinwhichtheacquiredbusinessesstill
provided the foundation for the structure of his group. Foseco operated as Foseco; Fosroc as Fosroc,
Sericol as Sericol and soon; each with its head office and often with subsidiary geographical offices.
There had been no attempt within this to sort out a rationale for the Chemicals Group. The strategic
review identified an underlying theme of industrial marketing and quality service as the core
competences of the successful chemicals businesses. It was clear that the success of these businesses
was much more to do with understanding customer needs than the production of chemicals. This
conclusion resulted in a move to much greater focus on devolution of responsibility to the marketfacing business units.
In 1996 Tim Stevenson, then CEO of the Castrol business, also instigated a strategic review of that
side of the portfolio. The passenger car engine oil business, which represented 75 per cent of total
profits, faced the prospect of more efficient engines requiring longer and longer gaps between oil
changes; and therefore of potential long-term volume decline. However, the strategic review was
triggered by a short-term challenge: Tim Stevenson explained:
In1996, we had a difficult year in North America after a run of consistently good volume and profit
growth; and simultaneously we started to develop worries about long-run developments in the
passenger car engine oil business in Europe. Thus we believed we had the makings of a problem in
the developed world concerning the sustainability of the sorts of growth achieved in the past in
selling growing volumes of high-margin sophisticated lubricants into passenger car engine oil
markets. And whilst we had a very successful developing world position, particularly in Asia
Pacific, that was unlikely to offer sufficient to offset the difficulties we might be going
to encounter over a five-year runabsent of actionin the bigger developed markets in Europe and
North America.
All this provoked us into having are-look at what was happening to our passenger engine oil
business, what the medium-term market development might look like and what was going to
happen to the competitor structure. The conclusion was that our old approach, unaltered, was not
going to enable us to continue to grow the business at the rate previous strategic plans had assumed.
We also looked at the other businesses; the industrial lubricants business, the marine lubricants
business and the commercial lubricants business. The key overall conclusion that emerged was that
our internal structure for managing the global Castrol lubricants business was no longer appropriate
if we were to optimise our position in each of the four markets. Our old Structure had been a
geographically based model, with four regional directors, the line managers responsible for over 50
country managers who ran their country businesses, very successfully hitherto, like individual
fiefdoms. Within the country they were responsible for all aspects of Castrols business, covering all
the four market areas, and for sourcing of raw materials, blending, distribution, customer
relationships; everything. They had to comply with central instructions in terms of the use of the

brand and other broad policy areas but, subject to a relatively small number of rules of engagement,
they were left to themselves.
A problem was that some of the areas of business were suffering because of the dominant
culture of the passenger car engine oil business. So, for example, an opportunity for significant
business development was being missed because there was no co-ordinated policy for focusing
Exhibit1 The Burmah Castrol business in the late 1990s
Castrol Consumer

Castrol Industrial

Castrol Marine

Castrol Consumer is world leader In the supply of car and motorcycle lubricants and services, marketing to work shops and
retail chains, Auto accessory stores and petrol stations. Principal products are engine oils, e.g.GTX, transmission fluids and
brake fluids.

Marketshare11%
Marketposition1
Worldmarketsize11bnlitres Main competitors:

Mobil
Shell
Texaco
Castrol Industrial is the world leader in supplying metal working fluid and services to industries such as transport and
metal component manufacturers. The business also supplies process industries such as food and beverage, mining,
power generation and offshore oil
And gas production.
Market share 6% (metalworking) Market position 1 (metalworking) Worldmarketsize12bnlitres Main competitors:
Fuchs Houghton Milacron

Castrol Marine markets specialist lubricants and fluids to the international marine market. Customers range from the
largest international ship owning groups, leisure and cruise operators to small fishing boat owners. Castrol Marine
provides unique lubricant solutions and essential business information, increasingly through the Internet.
Marketshare12%
Marketposition5
Worldmarketsize2bnlitres Main competitors:

BP
Mobil
Shell
Castrol Commercial
Castrol Commercial provides products and services principally to on and off-road vehicle fleets. Off-road business
includes vehicles used in construction, quarrying, agriculture and forestry. On-road fleets cover trucks, buses and
coaches. Castrol Commercial assists its customers in optimising service intervals, achieving fuel economy and
improving engine efficiencies.
Marketshare2%
Marketposition5
Worldmarketsize11bnlitres Main competitors:

Exxon
Mobil
Shell
Foseco Foundry
Foseco Foundry is the worlds leading supplier of consumable chemicals and services to the foundry industry. Fosecos
products are used in the conversion of molten metal in to finished castings. This enables foundries to produce castings
of high quality, strength and weight whilst improving efficiency and reducing energy consumption.
Marketshare19%
Marketposition1 Worldmarketsize1.2bn Main competitors: Ashland

Borden Huttenes-Albertus
Fosroc Construction

Fosroc Construction provides formulated products for the civil engineering and construction industries worldwide. Products
include concrete admixtures to provide enhanced characteristics and greater cost effectiveness; A wide range of cementbased

mortars and products and systems to extend the life of concrete structures.
Marketshare2%
Marketposition5 Worldmarketsize6bn Main competitors: SKW-MBT
Sika WRGrace

Sericol Printing
Sericol Printing is the world leader in screen printing inks and ancillary products. It supplies inks to the graphic, textile and
speciality markets which include CDs, credit cards and snowboards. Sericol provides its customers with a high level of
support, including training, computerised colour matching And environmental services.

Marketshare11%
Marketposition1 Worldmarketsize1.1bn Main competitors: Coates Screen

Nazdar
Chem-Trend Releasants
Chem-Trend Releasants is the worlds largest manufacturer of specialised mould and die cast release agents.
Customers range from manufacturers of tyres and car steering wheels to shoe soles for the footwear industry. Each
relies on Chem-Trends tailor-made formulations and application skills to improve quality, cost and productivity.
Marketshare182%
Marketposition15 Worldmarketsize270m Main competitors: Acheson

Acmos
Wacker
Foseco Steel
Foseco Steels strong market position has been built on an ability to provide major steel producers with a total package of
products And services which are vital to the safe, efficient and cost-effective production of high-quality steel.

Marketshare5%
Marketposition2 Worldmarketsize1bn Main competitors: Thor-Didier

Stollberg
Vesuvius
Source:BurmahCastrolannualreport.

4
on the industrial lubricants business. The conclusion was reached that to optimise performance
over the whole business, and to achieve economies of scale, we needed to move away from a
geographic structure to one focusing on each of the four areas of Castrol as global businesses in
their own right. We made the decision half way through 1997 and then implemented it in 1997 and
1998. It was a very significant cultural change for the organisation. The old structure had been
immensely successful. It had enabled a very strong ethic of customer focus and a strong esprit de
corps. If you had the right man in Australia or Vietnam or Brazil, and you gave him his head, he
produced strong results. So turning our backs on all of that and sweeping away the country
structure was a major move. We originally planned to implement over two years, phasing it in; but
in practice the job was completed in just over 12 months. It was done quickly and with minimal
disruption. The results didnt suffer and on balance little of our market-facing customer focus was
lost. Furthermore, the early signs were that the substantial benefits that we hoped to achieve from
the change would materialise.
The logic behind these changes had two main elements. First, it gave the opportunity of
unleashing potential in the industrial business and the commercial business and giving marine
the proper focus that it needed. But the biggest benefit, second, was that the restructuring enabled

a global focus on the passenger car engine oil business. Market trends couldnt be reversed, of
course; but by having a single team to think about how we were going to manage the business
globally, to take advantage of economies of scale on a regional and global basis and maximise
the potential of our global branding strategy, opportunities were opened up for managing that
business much more effectively in what looked as though it would become a tougher
environment.
Exhibit2 summarises the financial performance of Burmah Castrol in the late 1990s.

THE GOLDEN THREAD

In 1997 Tim Stevenson took over as CEO of the Burmah Castrol Group. He was aware that some
financial institutions were looking for action at the Group level. They had witnessed and approved the
restructuring of the organisation; but there remained bigger questions.
I was seen by some as an opportunity to force management to look at the business with new eyes; if
you like, through their eyes in terms of how value could be released to them. Our Board had earlier
discussed, in general philosophical terms, what managements objectives ought to be and whether
shareholder value should be the driving force of what we were doing. There was complete agreement
that that had to be the guiding force. Our share price reached 10 in the early1990 sand hadnt really
moved from that level. It moved to 13 at one point and down to 7 at another, but these were the
extremes of a dull range. [SeeExhibit3.] When you have a share price that is doggedly stuck, but you
have high-quality assets, there is an imperative to do something about it because, if you dont, sooner
or later the market will find a way of doing it for youof delivering value to the shareholders.
At this timewearguedwithourshareholdersthattherationaleforBurmahCastrollayinour having a
golden thread. Although Castrol and Chemicals were separate entities and we didnt manage
them as one, there were sufficient similarities in terms of the sorts of businesses they were and the
way they went to market, to enable Burmah Castrol to add value at the top level.
The golden thread argument had received qualified support from a study of 21 of the most successful
businesses in Burmah Castrol, spanning consumer, industrial and commercial lubricants and various chemicals
businesses from different parts of the world. It concluded that the success of most of the businesses was based
on competences to do with high levels of service rooted in localised knowledge

5
Exhibit2 Five-year summary of Burmah Castrol financial performance

Turnover net of duties:

Continuing operations (including acquisitions)
Discontinued operations (note(i))

Operating profit before exceptional items:

1999

1998

1996

Continuing operations (including acquisitions)

Castrol subsidiaries
Share of operating profit in associates
Castrol
Chemicals
Fuels
Energy investments
Central management

(12.6)

Discontinued operations

Interest

(27.7)

Profit before exceptional items and taxation

Exceptional items:
Continuing operations
Discontinued operations
Profit before taxation
Taxation

(97.8)

Profit after taxation

Minorityinterests

(20.2)

Profit for the financial year attributable to

shareholders
Balance sheet
Fixed assets
Net current assets
Total assets less current liabilities
Long-term creditors and provisions

(631.4)

Minority interests

(80.7)

Shareholders funds
pence

pence

penc
e

Statistics per ordinary share:

Ordinary dividends(note(ii))

33.45

Earnings per ordinary share before exceptional items

Earnings per ordinary share after exceptional items
Shareholders funds
i.
ii.

(i) Discontinued operations relate to the results of subsidiary and associated undertakings discontinued at any time during the five year
period under review.
(ii) Excluding any Foreign Income Dividend enhancement.

of how their product applications could meet customer need. Similar to the earlier exercise on the
Chemicals businesses, the conclusion was that success was not so much based on the technical aspect of
product as on industrial marketing and service on a local basis. An important exception to this pat-tern was
that part of the passenger car lubricants business which involved sale of product through retail channels.
This relied a great deal more on brand and marketing push. The results of the exercise did, however,
support the decision to reorganise the Group into market-facing business units. Further, it helped identify
appropriate, and inappropriate, roles for the centre. The Group centre of Burmah Castrol should
concentrate on developing people with the skills to work internationally but with local sensitivity; but it
should avoid heavy-handed central co-ordination. The Corporate Centre was

6
reorganised as a result of this exercise, splitting the corporate-level activity off from the servicing
activity which was
Exhibit 3 Relative performance of FTSEAll-Sharevs. Burmah Castrol, from
January 1995 to July 2000

set up to be market responsive. So if operating companies did not want to buy the services the centre
was offering they could go elsewhere.
There were, then, arguments that management could use in support of the proposition that Burmah
Castrol businesses were linked by a golden thread:
We believed we had a strong story to explain to the institutions what it was we were trying to

do, and how we were going to release value.

However, as we got into the streaming of Castrol in to four separate business streams, this
increasingly had an influence on our own thinking about the shape of the portfolio as a whole.
Having split out the industrial business from the passenger car engine oil business ,it further
highlighted, for example, that there might be more similarities between the industrial lubricants
business and the foundry chemicals business than there were between, say, the industrial lubricant
business and he passenger car engine oil business. So by breaking up Castrol into business units,
we had an effect on our own internal thinking.
At the same time as this change within the company, a process of major consolidation in The oil
industry was underway. We believed this to be a once-off process. It seemed to us that Castrolits
brand and marketing culturewould represent a great prize to a number of the major oil companies
because of economies of scale and the broader coverage of the lubricants market that it would
provide. This led us to believe that there could be latent potential for releasing substantial value to
our shareholders by in some way putting our lubricants business together with another major
lubricants business.
Thus at this point there were various distinct strands of thinking. At one level we were
explaining to the City that management had a clear vision for developing our Castrol and
Chemicals portfolio as restructured. At another, we believed we had to explore what routes

7
might be open to us to release the value that we believed was inherent in our businesses but
which was not reflected in our share price.

THE PRESSURE FOR RELEASING SHAREHOLDER VALUE

The pressure on management to demonstrate how Burmah Castrol could release more value for
shareholders remained; and there was growing concern internally about a need for greater clarity of
corporate strategy:
The activism from some shareholders continued. When our sharep rice went down to 7.50 there was
particularly strong pressure from some shareholders along the lines of We dont want to strong-arm you
but you must do something about this. You are sitting on a strong global as set in Castrol, the value of
which is being dragged down by the fact that as management you continue to manage speciality chemicals
businesses which are not so highly rated. And by 1999, Internally there was some feedback about the lack
of vision in the corporation. We had a series of senior executive briefings in Europe, Asia Pacific and in
North America; open and frank debate suggested that senior teams sought a clear banner for the future of
the corporation that they could rally round. With half of the profit coming from the passenger car engine
oil business, however, it was difficult to provide really strong argument that would provide an overall
cohesive umbrella that people could buy into. It was not possible for senior management to argue that
there was something over and above the golden threadwhich some were questioning. So at this point we
had a combination of some lack of belief internally, lack of belief externally and a possibly time-limited
opportunity as a result of oil industry consolidation. In addition, one of our non -executives argued
consistently at board meetings that there was indeed a time-limited opportunity to release value to
shareholders. If you leave it you will discover that its passed you by and the opportunity for releasing
value will disappear, and, worse, in some scenarios you will find, as an independent player who has not
played apart in consolidation, you are increasingly squeezed by the big players. As an executive team we
came to a view that we had to explore what opportunities there were for us to play a part in the process of

consolidation.
Joint venture discussions
The earliest conversations we had with a major player in the oil industry were in late 97 and the
summer of 98. The argument was that at a time of consolidation you need to be aware how the big
players may operate in the lubricants market. They have substantial economies of scale. If they should
choose to use the advantages of those economies of scale to buy market share through cutting margins
in the developed markets, that could seriously affect our business. They can make such cuts and still
make good returns because they enjoy economies of scale that we dont have. If we could establish a
joint venture, we would have the possibility of releasing value by locking our brand alongside another
major brand, and reaping the benefits of scale.
At the same time it could head off the perceived threat to our business from the process of oil
industry consolidation.
We went into these discussions on the basis that what we had to offer was the premier
independent premium lubricants brand in the consumer market and a strongly embedded
marketing culture. Our working assumption was that we could achieve value and long-term
growth security, by allying ourselves in some way with a major oil company.
Discussion about possible structures, however, raised issues about how Burmah Castrol could
structure a joint venture for its Castrol business with another major international oil company in a
way that would unequivocally put value into our shareholders hands. In a joint venture with a major
oil company where they would own 50 percent of Castrol and our shareholders would own 50
percent of Castrol, what would that then make of Burmah
Castrol as a whole? An independent investor in Burmah Castrol would have a 100 per cent
investment in a 800m turnover series of speciality chemicals businesses and a 50 per cent share in
a major global lubricants business, the other half of which would be owned by a

8
Major oil company. Our advisers counselled that this would not be acceptable to the market. Any
bid premium in our share price would go, and we would be tide in terms of flexibility for what
we could do with Castrol. This led to the inevitable conclusion that release of
value to shareholders through allying Castrol with another lubricants business effectively
meant selling.
Other strategic options
What was the alternative to such a sale, bearing in mind the value which it could potentially release?
The alternative which management developed, inconsiderable detail, involved breaking the Groupup.
This acknowledged market scepticism about the coherence of the portfolio. Although the need for
radical restructuring was accepted, an issue which management did not fully resolve at this point in the
process concerned how the slicing should be carried out. There were two views.
One option would be to sell Chemicals, significantly run down the Burmah Castrol head office to
those functions needed to support the Castrol business, and be even more radical than we were being in
terms of the way the Castrol business was run by taking out substantial cost. This would have involved
major rationalisation of the whole supply chain; of the back office infrastructure throughout the world;
of the way the portfolio of brands was run. In other words, turning the business in to one focused on
sales and marketing organisation with most other activity being outsourced.
The alternative was a variant on the theme. It was to sell parts of the Chemicals businesses but to
keep those that were automotive based. Under this model we might have retained our foundry
chemicals business, the Chem-Trend Releasants business, the investment casting business and sold

construction chemicals, mining, printing inks, cables, waxall of the things that didnt obviously fit
into an automotive products and services model. That would have left us with a business of two
parts: a passenger car engine oil business and an industrial-facing businessand with the residual
possibility of in due course breaking it into two. Some work
was done on the viability of this option.

THE DECISION TO SELL

On 11 August 1998, BP announced its merger with Amoco and in so doing initiated a wave of
consolidation amongst the major oils. This was followed on 1 December 1998 by Exxons announcement
of a merger with Mobil, which put into play the lubricants business within the BP-Mobil joint venture in
Europe.
During its early conversations with Amoco, BP had come to the realisation that there remained a
strategic gap in its downstream portfolio. The small lubricants business that it would potentially inherit
from Amoco in combination with BPs existing lubricants business simply would not have the critical
mass to compete effectively on the world stage. After the Amoco merger, BP either had to consider
maintaining a niche tactical presence or perhaps even a total withdrawal from the lubricants business, or
seek other opportunities to grow the business into a material globally branded business. The thinking
within BP had identified Burmah Castrol amongst others as possible opportunities to help achieve this
objective.
As this thinking crystallised in mid-1999, the decision was taken within BP to take a significant strategic
step in the lubricants sector first by extracting at a minimum its share of the lubricants business from the Mobil
joint venture in Europe, and secondly by pursuing exploratory discussions with Burmah Castrol. BP
management saw Burmah Castrol as a vehicle for growth, delivering a global brand, world-class marketing
talent and significant synergy savings as well as, importantly, growth through brand extension, cross-selling,
and access to additional emerging markets. It saw no advantage

9
in retaining the ancillary Chemicals portfolio within Burmah and resolved, if an
arrangement were reached to acquire Burmah, to divest them as soon as practically
possible.
In Burmah Castrol too the implications of the likely consolidation in the industry were
being considered. Tim Stevenson explained:
It was clear that a knock-on effect would be a major change in the status of the Europeanwide pre-existing joint venture between BP and Mobil. It seemed to us, as part of our
approach to examining options for combining our lubricants business with that of one of
the majors, that this opened an opportunity. We approached BP with this proposition, and
they responded favourably. A team was put together to examine the possibilities.
Within Burmah Castrol there was, quite rightly, considerable executive debate about
the appropriateness of selling the business. The argument that something had to be done
to release value to our shareholders locked up in our business but not reflected in our
share price was clearly powerful. Yet there were also considerations of corporate
tradition: the fact that Burmah had existed for over 100 years; the fact that we were

beginning to develop an aggressive alternative to outright sale to a third party.

All acknowledged that there was a point at which we would have to sell. It came
down to a discussion concerning the net present value of what managements
alternative go it alone option would deliver against the price BP would be prepared
to pay. In the event BPs offer of 16.75 per share had to be set against that value that
managements plan B could deliver overtime.
At the board meeting that decided to recommend the BP bid the board accepted that
the company was at a cross roads; something significant had to happen. If the BP bid
were not to be recommended then there would need to be a radical change to the shape
of the corporation,
Involving the abandonment of the golden thread argument the alternative option on the
table at the meeting involved the plan outlined earlier: radical reshaping of the portfolio,
together with substantial cost-saving measures and some aggressive new business
initiatives. We had modelled this in terms of its impact on the share price over the medium
term, assuming successful implementation. The boards debate concerned managements
ability to carry through a radical new agenda; how quickly success would be reflected in
the share price; and how this would
stack up against BPs 16.75 offer.
The response from the financial institutions and the press to the boards decision
to accept 16.75 was that it was the right thing to do. Internally, response was
inevitably mixed. The initial response in Castrol was broadly enthusiastic. Its
the right thing to do; taking a five-year view as an independent company were
going to come under increasing pressure. Putting the Castrol business together
with the BP business gives us a much greater footprint globally around the world,
particularly in Europe but also in the Far East. BP are tougher, harder managers
than Burmah Castrol; very rigorous in terms of costs. Castrol needs that. Theyll
bring their rigour to sorting out the expense base. In the Chemicals businesses there
was inevitably some sense of betrayal; certainly disappointment and anxiety about
who the new owners were going to be. But the Chemicals executives continued to
manage the businesses very professionally. Results for the first six months of 2000
were excellent. Perhaps hardest hit were those people in Burmah

10
Castrol head office: the ending of the PLC meant the end of requirement for many
head office functions. They were perhaps the people who most felt we should have
stayed independent and go our own way; although of course the reality was that had
we not sold to BP, our own restructuring plan would likely have put many jobs in
jeopardy in any event.
In July 2000 Burmah Castrol formally became part of BP Amoco. Most of the corporate
board of Burmah Castrol left, including Tim Stevenson, and BP started the process of
finding buyers for the Chemicals businesses.
it allowed the company to reduce costs by eliminating redundant jobs.