BP Amoco has been plunged into a bitter battle over its attempt to take over US-based Arco. The petrochemical giant, which is due to publish fourth-quarter results on Tuesday, is preparing for a protracted court battle to save the deal following intervention by the Federal Trade Commission. The commission accused BP Amoco of manipulating oil prices to a select group of West Coast refineries dependent on production from Alaska’s North Slope, by exporting it. It also said the combined company would have too much control over certain key storage and transportation facilities. The decision is a rare setback for BP Amoco chief executive Sir John Browne who sparked the latest round of consolidation in the oil industry with the acquisition of Amoco in August 1998. The agreement to buy Arco was announced in April last year when it was also revealed BP Amoco would take an £11m goodwill hit if the acquisition was successful. At the time, a Big Five oil industry expert warned: ‘Such a large goodwill bill could take a large chunk out of any savings gained from combining the two companies’ extensive operations out of Alaska.’ Under accounting rules in FRS6, the deal cannot be accounted for as a merger because Arco, which has a market capitalisation of $21bn (£13bn), is worth less than 15% of BP Amoco, whose value tops £120bn. The company would be required to write off around $18bn of goodwill over the life of its oil reserves. As Arco has 13 years of production left, this would require a daily charge of more than $1bn. Heading the negotiations for BP Amoco is chief financial officer John Buchanan, who took on the role when BP merged with Amoco in 1998.
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