This study aims to critically examine the risks associated with a current business project, specifically focusing on the project and contract risks. The most recent incident involving Amoco and British Petroleum will serve as the basis for investigating the identification, evaluation, and prevention of project risks. In addition, one of the primary focuses of the section is on contract terms carried out at the time of the merger transaction.

1)      Background of Case British Petroleum and Amoco

The announcement that British Petroleum and Amoco intended to merge into a single firm took place on August 11, 1998. This marked the beginning of the largest industrial merger in the annals of the history of the whole globe. Initially, all British Petroleum stations in the U.S. became Amoco stations, while all Amoco stations outside the U.S. became British Petroleum stations (Kumar, 2018). When British Petroleum announced in 2001 that certain Amoco stations would be closed or disposed of, Amoco Fuels was rebranded as British Petroleum. This caused Amoco Fuels to be known as British Petroleum today. This marked the beginning of the transition that Amoco Fuels would undergo.

2)      Risk Identification at Merger

Following are the Risk of mergers that are about to be faced by both organizations.

a)      PESTLE Analysis with braining Storming

Political, economic, social, technical, legal, and environmental variables impact corporate operations and competitiveness. This analytical tool helps a company plan strategically for any structural changes or offers an overview of external effects. Political influence affects the oil industry’s success.

1.      Political / Market Reaction

B.P. funds political efforts to woo governments. It pays lobbyists to represent its interests in the U.S. Political issues have impacted its operational decision-making approach, leading to diverse manufacturing technologies.

• The U.K.’s oil and gas industry needs political stability. Many oil-rich Middle Eastern nations lack political stability.
• Safety regulations for oil and gas employees are crucial and a political element.
• P. must observe regional oil and gas trading restrictions and taxes.
• Politics affect British Petroleum’s taxes and incentives.

Because the merger taking place at the time was the most important in the industry, it was more susceptible to reactions from the unexpected market. Educating ourselves on Merger risks, learning from experts, and current understanding of trends are all helpful strategies (Chui, 2011).

2.      Economical

The economy largely influences B.P.’s operations and strategic choices. The recent global recession reduced its profit margin; interest rates affect its cost of capital and overall development and expansion, and currency rates affect the cost of exporting and importing its energy goods. Consumer trust in B.P.’s goods may be harmed by its environmental policy.

The intention of B.P. Petroleum and Amoco were to establish a single corporation with a unified management team and business approach. Poor due diligence methods might have been adopted at the time of B.P. Petroleum and Amoco Merger run against the essence and meaning of due diligence. Teams without diligence, knowledge, and skill consistently harm agreements (Denison and Ko, 2016). When the new business is launched, Petroleum’s financial statements and dividends will be presented in a unified currency. B.P. and Amoco Company’s financial statements and dividends will be presented in a unified currency. If Amoco or B.P. decides to use only one currency, its stockholders will be put in a position where they are vulnerable to currency risk.

3.      Social / Cultural

Changes in societal trends may affect a firm’s product demand and workers’ availability and desire to work. Aging in England has boosted B.P.’s pension fund expenditures since employees live longer. Population growth is rapid. This implies that oil demand will rise next year. B.P. must adapt its goods as more individuals become environmentally conscious.

• British Petroleum’s social factors include demographics and population skill level.
• Education level and interest in oil and gas are societal factors.
• British Petroleum values employees’ work ethic.

Many individuals believe that the culture of British Petroleum, which is centered on efficiency, is no longer functional (Duan, Ye, and Liu, 2019). Acquisitions may fail if culture is not considered. Poor change management techniques are no exception. Differences in the B.P. Petroleum and Amoco culture may also be a factor in the operation’s failure if the interests of the parties involved are not aligned.

4.      Technological / Integration Risk

B.P. must produce breakthrough global energy products. The corporation uses a secure I.T. system to monitor and manage oil flow over lengthy pipes. The Company’s website allows easy consumer communication. The firm also researches alternative energy technologies.

• Competitors’ technical advances influence British Petroleum’s operations.
• British Petroleum relies heavily on technology dissemination and modern technologies to increase oil production efficiency.
• Technology also helps British Petroleum enhance its value chain structure.

Analysts have some reservations about this merger because the size of the resulting business would be incompatible with B.P.’s recipe for success, which consists of maximizing efficiency and minimizing exposure to underperforming assets(Thijssen, 2008). In other words, the size of the resulting business would be incompatible with B.P.’s recipe for success. While maximizing the realization of synergies and preventing dilution of their shares in the new firm, the purchase of Amoco at a fair price and a thorough integration into B.P. would optimize the price at which they can realize synergies (Frantz, 2017).

5.      Environmental Aspects

Environmental organizations are concerned about the Company’s environmental damage. This might affect B.P.’s performance since customer attitudes around climate change could affect product demand (DeYoung, Evanoff, and Molyneux, 2009). The prize is for firms not addressing climate change. B.P. is minimizing environmental pollution despite criticism.

• Fossil fuel-caused climate change is a major environmental issue.
• British Petroleum is concerned about water and air pollution in the oil and gas business.
• Oil and gas need proper waste management.

6.      Legal Matters.

Legal issues affect B.P.’s activities. In the U.K., age and disability discrimination laws have altered corporate operations. Some nations have raised the minimum wage, imposed health and safety rules, and tightened work restrictions (Alaranta and Mathiassen, 2014).

• Employment law is a factor.
• Oil and gas need health and safety laws.
• British Petroleum relies on antitrust legislation in the oil and gas business.

3)      Categorization of Potential Risk in Merger.

We have discussed the details of the Risk identified in the PESTEL analysis. The same has been addressed and analyzed, considering the internal and external impact. Further, its impact and probability analyses have also been brainstormed in the appendix.

4)      Assessment of Key Risk Identified.

For B.P. Petroleum, Acquisition is often a company’s largest single investment, making it a significant source of the potential loss. Improperly managed mergers and acquisitions may strain B.P.’s cash flow. The majority of mergers that do not work out are the ones that take on too much of a financial load, which sets the stage for the transaction to fail right from the beginning. Therefore, Financial Risk is an essential part of the mergers and acquisitions process. B.P. and Amoco tried to cut costs at every stage of the agreement.

Mitigating Strategy

Amoco will get a portion of the savings from many cost reduction initiatives, and as a result, the Company’s value will rise. B.P. should pay a greater premium because this combination will generate substantial synergies thanks to Amoco’s potential for increased operational efficiency.

 The combined firm should be listed in London using GBP so that dividends may continue to be paid out using the same currency after the merger (Reuer, Shenkar, and Ragozzino, 2003). B.P. may avoid incurring higher transaction costs and significant foreign exchange risk for the dividend payout if the combined firm is listed in London.

5)      Mitigation of Potential Risks along with its alignment with Risk Mitigation Strategy

a)      Risk Mitigation Strategy for Overpaying the Target Company, i.e., Financial Risk

First, it is vital to emphasize Amoco Company’s overall strategy and the underlying aims behind the agreement to construct a foundation built on avoiding overpaying. Next, it is in B.P. The Company’s best interest is to compile an exhaustive valuation report, regardless of whether it does its valuation or contracts with an outside party. Tax returns, essential financials for the previous three to five years, a summary of the target’s organizational structure and several personnel, and shareholder agreements are typically helpful.

At British Petroleum and Amoco.

Because this transaction has the potential to generate substantial synergies thanks to Amoco’s operational efficiency capabilities, B.P. should pay a greater premium. Browne, the CEO of B.P., believed that making a significant purchase was the best way to discover new avenues for revenue expansion (Vertakova, Vselenskaya, and Plotnikov, 2021). The Chief Executive Officer of BP, Browne, thought that pursuing a significant purchase would be the best way to locate a new source of revenue growth.

b)     Risk Mitigation Strategy for Miscalculating Synergies

When a business considers the potential benefits of transaction synergies, the most important thing it can do is exercise extreme caution in its synergy predictions. In light of this, merger project management systems and valuation spreadsheets are useful tools for discovering synergies (Mahadewi, 2018). Once a business has determined what it believes the synergies to be, it should reduce that amount; the standard procedure is to cut it in half; doing so will allow B.P. to maintain a cautious stance concerning transaction synergies.

At British Petroleum and Amoco.

In the long run, B.P.’s issue would be resolved if it were to acquire Amoco. B.P.’s Replacement Costs would go down if they acquired Amoco. B.P.’s Replacement Costs would go down once the Company acquired Amoco.

c)      Risk Mitigation Strategy for Due Diligences

Due diligence is a vital step that may make or break deals. Include a variety of knowledge and expertise on the diligence team. The best due diligence teams are specific to the purchase and firm industry. For larger transactions, specialist networks are used to build specialized teams. Long-term, experienced help pays rewards. The diligence team asks the right questions, reducing surprises and speeding up the process.

At British Petroleum and Amoco.

For B.P. to successfully persuade Amoco’s stockholders to offer their shares, the premium that it pays for Amoco has to be increased. For B.P. to successfully persuade Amoco’s stockholders to offer their shares, the premium that it pays for Amoco has to be increased.

d)     Risk Mitigation Strategy for Integration Risk

Integrate due diligence team members first. This simplifies data and minimizes repetitious work. Integration team members should also be value-creators (Weston, Johnson, and Siu, 1999). B.P. integration team’s tags with H.R. organizational development side. With an experienced and qualified integration team in place, new facts and knowledge about the target organization may be discovered.

At British Petroleum and Amoco.

When combined with B.P.’s strengths in Europe and Amoco’s in the United States, this business would provide a powerful platform for expansion in Asia. Both companies already had significant investments. Both BP and Amoco have large investments in solar energy. Both companies share solid histories and reputations for environmentally and socially responsible business activities and sound operational procedures.

e)      Risk Mitigation Strategy for cultural Risk

Buy-side should learn target culture early, like integration planning. In the early stages of a negotiation, when the buyer is not privy to particular facts, this may be done by onsite visits, research, or one-on-one contacts. A buy-side change management team should gather this information. As the negotiation advances, the change management team may investigate buy-side and sell-side discrepancies that might undermine or terminate the agreement. Culture and change management help identify and handle resistive personnel.

At British Petroleum and Amoco

Browne, the current CEO of B.P., is recognized for bringing to the Company a rigorous work ethic, a relentless cost-cutting and performance-based culture, and a concentration like a laser on increasing shareholder value. Browne is recognized for bringing to B.P. a rigorous work ethic, a relentless cost-cutting and performance-based culture, and a laser-like concentration on generating shareholder value. He is currently the Chief Executive Officer of B.P. (Bruner and Rynbrandt, 2008). B.P. now has a wider economic footprint in the oil business due to the merger that brought Amoco and British Petroleum to establish B.P.

6)      Utilization of Contractual terms and provisions for Mergers.

a)      Introduction

Indemnification obligations generally pertain to breaches of the respective parties’ representations, warranties, and covenants in a Merger purchase agreement. However, indemnification obligations can sometimes also apply to other legal or business matters on a standalone basis, regardless of whether such a breach has occurred. Indemnification from the seller to the buyer and vice versa is often included in a purchase agreement for Merger & Acquisition transaction. (Hill and Davidoff Solomon, 2016). Commercial contract phrasing should follow these guidelines.

• Parties should sign and date written contracts. Depending on local legislation, a contract may involve witnesses, notarization, etc. Exporters should get legal assistance to guarantee that their deal is legally binding.
• Reference all exhibits, schedules, appendices, and annexes throughout the contract.
• Any revisions to the original contract must be written and signed.
• If external finance is necessary, the contract should state that such arrangements must be in place before they may be enforced.

b)     Contractual Agreement terms between B.P. Petroleum and Amoco

Compared to past deals of a similar magnitude, the pre-merger conversations between the two firms were completed reasonably (OFFICER, 2004). The mutual advantages anticipated by both businesses were not difficult to ascertain, and agreements were reached cordially. The conditions were made public straight away, and a summary of them is as follows:

·         British Petroleum and Amoco Contract Purposes

In the signing line and elsewhere in the contract, the complete legal names of all British Petroleum and Amoco have been included. The business contract has been clearly describing the British Petroleum and Amoco obligations. This clause specifies the contract’s underlying terms and frequently contains a full description of the goods/services involved in a purchase-and-sale transaction or a particular project. The contract statement of duty specified a party’s design, supply, installation, commissioning, warranty, training, and service duties. After the merger, the business will have the following management structure: British Petroleum s CEO, Sir John Brown, will continue to oversee the Company. It will be co-chaired by B.P.’s chairman Peter Sutherland and Amoco’s chairman Larry Fuller.

·         British Petroleum and Amoco Contract Price

The contract needs to accurately represent the entire payment details arranged between the buyer and the seller. The value of the deal is 53 billion United States dollars. After the merger, the shareholder structure will comprise sixty percent British Petroleum shareholders and forty percent Amoco shareholders.

·         British Petroleum and Amoco Terms of Payment

• Following the merger, there were two sets of headquarters for the new Company: the headquarters of Amoco plc remained in London. At the same time, the head office of Amoco became the headquarters for the Company’s North American activities. Options that are tied to the merger were provided to B.P. by Amoco.
• P. was given the option to buy 189,783,270 shares of Amoco common stock for US$41 per share. This accounted for about 19.9 percent of the total shares of Amoco common stock that were issued and outstanding. Payout of dividends following the merger:
• Both companies would continue to pay quarterly dividends in the ordinary course before implementing the merger. Then its dividend policy was to continue paying 4 dividends a year and with a payout that was approximately 50 percent of through cycle earnings.
• P. Amoco plc verified cost savings through a cut-off in people; the two organizations had 99,450 workers collectively, with B.P. employing 56,450 and Amoco employing the rest. After the merger, B.P. said that it would be laying off staff.
• 8 billion barrels are the total amount of reserves. Providing service to 17,900 BP service stations located all over the globe and 9,300 Amoco service stations located entirely in the United States.
• The trading market for the companies: shares of British Petroleum and Amoco would continue to be listed on the New York Stock Exchange and the London Stock Exchange, respectively.

·         British Petroleum and Amoco Penalty and Liquidation Damages

If the British Petroleum and Amoco do to comply with certain contract performance responsibilities, the penalties and liquidated damages section outlines potential financial liabilities that the exporter may incur and, in certain instances, by the buyer. The Merger Agreement would also include provisions for the payment of termination costs from one party to the other if specific conditions are met.

• If shareholders of Amoco or B.P. do not agree to the merger and the other connected transactions,
• If the other party engages in discussions about an acquisition offer for that party with any other person, the offer will be deemed null and void.
• If the board of directors of the other party decides to reverse or make unfavorable changes to its approval of the merger

The termination clause may also resolve disputes. Each British Petroleum and Amoco termination payment and performance obligation has been outlined.

·         Contractual Effectiveness between British Petroleum and Amoco

The terms and conditions that must be satisfied for the contract to become legally binding are outlined in the effectiveness section of the agreement. When reading a contract, it is not uncommon to find that the date the contract was signed and the date it went into force are two separate dates. The “clock” for all of the terms and conditions of the contract, such as delivery, payment, and the issuing of performance instruments, often begins when the contract becomes effective. The contract’s efficacy influences the timeline of the contract and the exporter’s duties. British Petroleum and Amoco came under contact on 11-Aug-1998, whereas the transaction was completed on 31-Dec-1998.

·         British Petroleum and Amoco Governance

A contract’s controlling law clause specifies the parties’ choice of a legal system for interpreting its clauses. In the case of a contract interpretation disagreement between the parties, the controlling law shall be used. Without a controlling law provision, parties will not know which laws will be used to interpret or enforce the contract. Exporters should contact a lawyer about how the lack of a controlling law provision may affect contract interpretation and enforcement. BP PLC is one of the six supermajors in the United Kingdom, a multinational oil and gas corporation. B.P. is the third biggest energy firm in the U.K. based on revenue.

7)      Conclusion

When two global firms like British Petroleum and Amoco decide to combine, the process is exceedingly difficult and fraught with high stakes since it involves many diverse stakeholders. All of them have an interest in the result of the merger. The companies and the environments in which they operate converge, which increases the potential risks that might have severe ramifications if they are not adequately managed. This raises the question of whether or not the businesses and the environments in which they operate converge. Because of this, the project managers need to include risk management in the project and come up with solutions to reduce the possibility of unfavorable outcomes. In this article, identifying risks was carried out using various approaches. The examination of three factors (probability, impact, and proximity) highlighted the three dangers determined to be of the biggest relevance. These three categories of risk mitigation approaches were investigated and researched in detail. It was determined that it would be beneficial to make an effort to include dispute resolution into the contract between British Petroleum and Amoco because there is a possibility that disagreements will arise as a result of the contract between the two companies.

8)      Appendix

9)      Bibliography

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