BP has agreed to buy German utility E.ON AG's oil unit in an asset swap deal valued at $5.5 billion which gives BP top slot in one of Europe's largest gasoline retail markets and E.ON a key stake in Germany's biggest gas supplier.

The British firm will initially acquire 51 per cent of Veba Oel, including Aral, Germany's largest chain of gas stations, the companies said in separate statements. It has an option to buy 100 per cent next year.

BP will pay, in part, by handing over to E.ON control of its 25.5 per cent shareholding in gas supplier Ruhrgas, a stake which it values at $1 billion. It will also pay E.ON $1.63 billion in cash and assume $950 million in debt.

The deal gives Veba Oel an enterprise value of about $5.55 billion, E.ON said, based on its own valuation of the Ruhrgas stake of €2.4 billion ($2.06 billion).

BP plans to merge its German retail business with the new unit in a move that would give it 25 per cent of the German gasoline and diesel market and would enable the combined businesses to cut costs by 15 per cent. Some 1,500 jobs would be cut, it said.

The deal will also enhance BP's share of the European retail markets.

For E.ON the sale, well flagged in advance, was welcomed by investors as a sign that it is executing its strategic goals.