After wrangling over who would take over whom, France’s largest oilcompany, TotalFina, and Elf Aquitaine agreed to merge in what thecompanies called an “amicable” deal. TotalFina agreed to improve theterms of its initial July 5 hostile offer for Elf that was worth about$43 billion. The move follows a counter-offer made by Elf forTotalFina (see Daily GPI, July 20).

Shareholders of Elf Aquitaine are now being offered 19 shares ofTotalFina for 13 shares of Elf Aquitaine, which represents a 26%premium based on closing prices July 2, the last trading day beforeTotalFina launched its offer. TotalFina initially offered four ofits shares for every three Elf shares. The Elf counter-offer forTotalFina was for three Elf shares and 190 euros in cash for everyfive shares of TotalFina, representing a premium of 10% toTotalFina’s closing price July 16 (ex dividend).

The increased TotalFina offer has no minimum shares condition.Paris-based Elf said it withdrew its offer for TotalFina and bothcompanies said they were dropping litigation against each other.

The company to be created by the merger will be the fourthlargest major oil company in the world but still much smaller thanRoyal Dutch Shell, BP Amoco and the combined Exxon-Mobil. The boardof directors of the new group, chaired by TotalFina ChairmanThierry Desmarest, will be composed of nine directors from the Elfboard, nine directors from the TotalFina board, and four directorscurrently representing the Belgian shareholders within theTotalFina board.

The new group will be organized by operating segment. Anine-member executive committee will be established. In addition toThierry Desmarest as its president, the committee will be composedof four members from TotalFina and four members from Elf Aquitaine(a vice-president, two operational directors and a functionaldirector from each of the two groups).

“I believe that it is necessary today to join forces to assurecontinued solid growth and to take our place as an oil major of thefirst rank at a time when the industry is restructuring on a globalscale” Desmarest said in July when TotalFina’s bid for Elf wasannounced. “Joining the two companies will allow us to achieveannual pre-tax synergies expected to aggregate 1.2 billion eurosover a three-year period.”

From the world’s 13th largest oil and gas company in 1990, Totalgrew to the fifth largest after merging with Petrofina. Inexploration-production, the combined TotalFina-Elf Aquitaine willhave a balanced portfolio of nearly 10 billion boe in reserves,representing 13 years of production. Hydrocarbon production isprojected to grow by about 40% by 2005. Geographic overlap, notablyin the North Sea and in Africa, is expected to permit a substantialreduction in operating costs.

In refining-marketing, the combination of the European positionsaround six main hubs will constitute a stronger and more focusedplatform and will permit the integration of petrochemicals withrefining.

The chemicals segment of the combined company will pursue apolicy of growth and the integration of its different sectors tomaximize synergies. In its bid for TotalFina, Elf proposed spinningoff the chemicals business.

In terms of cash flow per share, the combination is projected tobe accretive by 6% in the first year following the merger, and interms of earnings per share by 4% in the second year.

Closing of the deal is expected in the next several weeks. ElfChairman Philippe Jaffr‚ will retire at closing. Desmarest willthen be named chairman and CEO of Elf Aquitaine and will beginintegration efforts.

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