TotalFina Wins Bid to Acquire Elf Aquitaine

After wrangling over who would take over whom, France's largest oil company, TotalFina, and Elf Aquitaine agreed to merge in what the companies called an "amicable" deal. TotalFina agreed to improve the terms of its initial July 5 hostile offer for Elf that was worth about $43 billion. The move follows a counter-offer made by Elf for TotalFina (see Daily GPI, July 20).

Shareholders of Elf Aquitaine are now being offered 19 shares of TotalFina for 13 shares of Elf Aquitaine, which represents a 26% premium based on closing prices July 2, the last trading day before TotalFina launched its offer. TotalFina initially offered four of its shares for every three Elf shares. The Elf counter-offer for TotalFina was for three Elf shares and 190 euros in cash for every five shares of TotalFina, representing a premium of 10% to TotalFina'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 both companies said they were dropping litigation against each other.

The company to be created by the merger will be the fourth largest major oil company in the world but still much smaller than Royal Dutch Shell, BP Amoco and the combined Exxon-Mobil. The board of directors of the new group, chaired by TotalFina Chairman Thierry Desmarest, will be composed of nine directors from the Elf board, nine directors from the TotalFina board, and four directors currently representing the Belgian shareholders within the TotalFina board.

The new group will be organized by operating segment. A nine-member executive committee will be established. In addition to Thierry Desmarest as its president, the committee will be composed of four members from TotalFina and four members from Elf Aquitaine (a vice-president, two operational directors and a functional director from each of the two groups).

"I believe that it is necessary today to join forces to assure continued solid growth and to take our place as an oil major of the first rank at a time when the industry is restructuring on a global scale" Desmarest said in July when TotalFina's bid for Elf was announced. "Joining the two companies will allow us to achieve annual pre-tax synergies expected to aggregate 1.2 billion euros over a three-year period."

From the world's 13th largest oil and gas company in 1990, Total grew to the fifth largest after merging with Petrofina. In exploration-production, the combined TotalFina-Elf Aquitaine will have a balanced portfolio of nearly 10 billion boe in reserves, representing 13 years of production. Hydrocarbon production is projected to grow by about 40% by 2005. Geographic overlap, notably in the North Sea and in Africa, is expected to permit a substantial reduction in operating costs.

In refining-marketing, the combination of the European positions around six main hubs will constitute a stronger and more focused platform and will permit the integration of petrochemicals with refining.

The chemicals segment of the combined company will pursue a policy of growth and the integration of its different sectors to maximize synergies. In its bid for TotalFina, Elf proposed spinning off the chemicals business.

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

Closing of the deal is expected in the next several weeks. Elf Chairman Philippe Jaffr‚ will retire at closing. Desmarest will then be named chairman and CEO of Elf Aquitaine and will begin integration efforts.

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