BP buys 51% of Veba, broadening position in German fuels marketing
By the OGJ Online Staff
LONDON, July 16 -- BP PLC has taken a majority stake in Veba Oil AG in a deal designed to give the British oil and gas company a large slice of the German fuels market and "fundamentally transform" its downstream position in central Europe.
The deal, arranged as two joint ventures between BP and Veba's owner, E.ON AG, will see BP take 51% and operation control of the subsidiary, which owns Aral, Germany's largest fuels retailer. BP has the option of taking over full ownership of Veba as early as the second quarter of 2002.
E.ON, in return, will receive 51% of Gelsenberg AG, which holds BP's 25.5% stake in Ruhrgas AG, Germany's leading gas distributor, along with a cash payment of $1.63 billion, while BP assumes $950 million in debt.
Terms have also been agreed which could mean BP transfers its remaining Ruhrgas stake and pays a further $340 million for the remainder of Veba. Deutsche Bank AG, London, is advising BP on the deal, which was announced Monday.
BP noted that the cash cost of acquiring all of Veba could be "significantly" offset by the resale of the German oil and gas company's upstream business, which produces 160,000 boed. The potential proceeds would be shared with E.ON, "with the bulk" being collected by BP.
By BP's calculations, a complete takeover of Veba could translate into annual synergies of at least $200 million.
"E.ON's wish to deepen its gas interests and exit downstream oil has presented BP with a unique opportunity to realize two strategic aims -- achieve market leadership at the heart of Europe and realize excellent value for our stake in Ruhrgas," said BP CEO John Browne.
He said, "This transaction has the potential to transform (BP's market position in Germany) at a stroke, giving us the leading, most efficient fuels business in the world's third largest economy.
"It also allows us to exit Ruhrgas -- a passive equity investment we have been seeking to monetize for a decade -- to a buyer happy to pay an excellent premium for an asset that fits very neatly with its growth strategy," Browne said.
Aral has a 2,560 retail sites in Germany with daily fuel sales of 170,000 bbl and 1.7 million customers a day in the central European country. Adding BP's existing German retail business would boost fuel sales to 230,000 b/d and shop revenues to over $2 billion/year.
Aral also operates 450 retail sites in neighboring European countries, including Austria and Poland, where BP also has key positions.
On top of its retail assets, Veba owns the 80,000-b/d Lingen refinery, along with stakes in four other refineries in Germany with a total processing capacity of over 300,000 b/d.
BP said the addition of these plants would "significantly enhance its supply logistics and boost its clean fuels capacity" in central Europe, while Veba's petrochemicals business, which has an ethylene capacity of 1.3 million tonnes/year, would help meet BP's future chemical feedstock needs in the region.
The British oil and gas company said it would review Veba's upstream business, which has assets in 13 countries including Venezuela, UK, the Netherlands, and Norway, with a view to reselling those that are "non-core" to BP's own international portfolio.
Under the terms of today's deal, which is subject to the approval of the European Commission and other authorities, BP and E.ON will form two joint ventures. One gives BP 51% and operating control of Veba, with the balance held by E.ON, while the other gives E.ON a 51% stake in Gelsenberg which holds BP's
25.5 % of Ruhrgas.
BP said that if took full control of Veba it would merge Aral's operations into its own marketing business and retain Aral as BP's sole retail fuels brand in Germany. Such a consolidation would bring combined business costs down by around 15%, while "entailing some reduction in the workforce."
