The British oil giant BP is to buy the oil business of Germany's biggest utility E.On.

The deal includes Germany's largest chain of petrol stations, Aral.

BP will initially acquire 51% of E.On's Veba Oel unit and may then boost this to become the sole owner of the group in the second quarter of next year.

BP also said that it may merge its own German oil business with the newly acquired unit in a move which could cut costs of the combined businesses by 15% and is likely to entail job cuts.

BP, famed for its aggressive expansion programme, will add Veba Oel to its list of recent takeovers that includes Amoco, Arco and Burmah Castrol.

E.On is also renowned for a string of acquisitions throughout Europe, snapping up the UK's power and gas firm Powergen earlier this year.

Asset swap

The latest deal is part of an asset swap worth 6.5bn euros (�3.97bn, $5.56bn).

In exchange for Veba Oel, E.On is getting a 51% stake in Gelsneberg which contains BP's 25.5% stake in Ruhrgas, Germany's largest gas supplier.

E.On will also get a payment of $1.63bn.

The stake in Ruhrgas is the key advantage of the deal for E.On, with chairman Ulrich Hartmann describing the deal as offering "unprecedented growth in the attractive gas sector".

The attraction for BP is the fuel retail business. It already owns about 1,000 petrol stations in Germany and will now gain 2,500 more from Veba.

Market reaction

Market analysts thought that the deal favoured E.On over BP.

And BP shares quickly gave up the gains they had made on the announcement.

"E.On is getting a very good price for Veba Oel and is paying a market price for Ruhrgas," said utilities analyst Matthias Heck at Sal.Oppenheim.

"It's a good strategic move as E.On is selling a noncore asset in exchange for a signficant stake in a key area."

At 0910 GMT shares in E.On had risen 0.2% to 63.8 euros on the Frankfurt stock exchange.

In London, shares in BP were down 2p to 570p.