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Vastar Board Supports $83/Share BP Buyout

Vastar Board Supports $83/Share BP Buyout

Vastar Resources Inc.'s board of directors last week unanimously recommended approval of a $83/share cash merger offer from BP Amoco. London-based BP Amoco already owns 81.9% of Vastar's common stock, acquired through last month's completed merger with Atlantic Richfield Co. BP Amoco would acquire 18.1%, or 17.7 million shares, of Vastar common stock that is now publicly held.

BP Amoco's offer of $83 a share for Vastar stock is quite a step up from its original offer of March 16 for $71 a share. The price rose following negotiations by a special committee made up of Vastar's and BP Amoco's board. In the end, both sides considered the price offer a win-win situation.

"The $83/share offer recognizes both Vastar's historical and prospective ability to create differential shareholder value," said Vastar's Robert LeVine, chairman of the special committee. "The special committee is pleased with the outcome of this process and believes that fair value for the minority interest shareholders has been achieved."

Vastar's James Bartlett believes the shareholders will be getting a "good price" for their stock if they approve the buyout. "They will get a 17% interest on their return," he said, "and this is really the icing on the cake." Bartlett said that Vastar was proud of what it had achieved so far, and the rate of return and increases in price on stock for its shareholders.

BP Amoco also was pleased that the merger was moving closer to a conclusion.

"The deal seems to make sense, and we are happy to be able to bring this to a conclusion," said Hugh Depland, director of public affairs for BP Amoco's Gulf of Mexico business. "Having this completed, we'll be able to bring in the assets, look at the opportunities available between these two companies, and take advantage of the synergies that are already in place."

Both companies said it was premature to discuss operational plans for the future. However, Depland said that a merger would add to BP's acreage, reserves and discoveries. "We'll be able to do things jointly, holistically and synergistically," he said. "On the face of it, we already own 81%, and without owning the rest, we might have ended up in a position where we were going to have to go to lease-sales and we might have had to bid against ourselves."

BP Amoco CEO Sir John Browne described the merger as "the final step associated with the ARCO union," and said, "this move allows BP Amoco to achieve substantial cost-savings and synergies to create significant value for shareholders. It also enhances our leading deepwater Gulf of Mexico portfolio and boosts our position in natural gas."

No personnel changes were mentioned either, but Depland said that BP Amoco's Browne is on the record as saying that the company "is always in need of bright, talented managers. It is his understanding that Vastar has a considerable amount of talent on board. And I'm sure we'll bring forward all of those opportunities when this is concluded."

Bartlett could not comment on the future of Vastar's 1,150-member workforce, based primarily in Houston. "We have a stellar development program, and there are a lot of reasons we were considered an attractive buy to BP. We are hopeful that BP will recognize the excellent business force it has in Vastar," he said.

Before a shareholder vote is taken, Bartlett said a proxy statement has to be completed and mailed to shareholders who then in turn will vote on the offer. All of this could take up to 75 days, but he anticipates no problems and said "we expect the shareholders will accept the offer."

The acquisition is structured as a merger of a wholly-owned indirect subsidiary of BP Amoco into Vastar and will not involve a tender offer. The merger is contingent on the approval by the holders of at least two-thirds of the Vastar shares not held by BP Amoco at a meeting scheduled for this summer.

Vastar, which has been an independent for nearly six years, explores and produces oil and natural gas, and is heavily focused on offshore developments in the Gulf of Mexico, where BP Amoco is already one of the top producers. Vastar is active in more than 100 producing fields, with exploration and production activities in the Gulf of Mexico shelf and deepwater, Gulf Coast, Rocky Mountains and Mid-Continent areas. According to company records, Vastar's reserves in the past six years increased by 59% to a record of nearly 4.1 Tcf of gas equivalent at year-end 1999. Annual average daily equivalent production increased by 38% in the same time period, reaching a record 1,438 MMcf in 1999.

BP's merger with Vastar should help it cut costs and shore up its position as a leader in the deepwater Gulf of Mexico. BP had announced plans to raise its gas production over the coming years, and the company wants its gas production to rise to 8 Bcf/d by the end of this year, and to 9 Bcf/d by the end of 2001. In 1999, BP produced about 6 Bcf/d.

Carolyn Davis, Houston

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