BP chief executive Sir John Browne told a news conference in London that the combined company would slash 6,000 jobs, with most of the cuts coming from operations in Cleveland at its North America headquarters and in Houston.
Later, the head of BP's North American operations announced it would shutter its Cleveland headquarters, eliminating about 1,000 jobs.
Steve Percy, chairman and chief executive of BP America, said the cuts would be made by the middle of next year.
The combined company will be called BP Amoco PLC, but in the United States, BP gasoline stations would be renamed Amoco.
Amoco shareholders will receive 3.97 ordinary BP shares for each share of Amoco they hold. The BP shares will be issued in the form of American Depositary Receipts. BP's ADRs each represent 6 ordinary BP shares.
Amoco's stock jumped 25 percent on the news to 51 1/4 and BP ADRs climbed 12.2 percent to 85 1/4.
"The deal creates creates the third new supermajor," said Gordon Dyal, an analyst at Morgan Stanley Dean Witter. The combined company will be on the same scale as oil giants Exxon and Royal Dutch/Shell Petroleum, he said.
Amoco shareholders stand to benefit from a new powerhouse that will have global reach and great liquidity, analysts said.
After the transaction, BP shareholders will control 60 percent of the combined company. The group will be headed by Browne. Combined revenues at the two companies last year were $108 billion.
BP currently has a price-to-earnings ratio of 12, compared to Amoco's 18, Paine Webber analysts said.
The companies expect pre-tax cost savings of $2 billion by the end of 2000.
"International competition in the industry is already fierce and will grow more acute as new players emerge," a joint statement from the companies read.
Written By Stephanie O'Brien