In the energy industry’s version of a pas de deux, France’slargest oil company, TotalFina, and Elf Aquitaine last weekacquiesced to a friendly merger after a two-month tussle over whowould acquire whom.

In what the companies called an “amicable” deal, TotalFinaagreed to improve the terms of its initial July 5 hostile offer forElf that was worth about $43 billion. The move follows acounter-offer made by Elf for TotalFina. Shareholders of ElfAquitaine are now being offered 19 shares of TotalFina for 13shares of Elf Aquitaine, which represents a 26% premium based onclosing prices July 2, the last trading day before TotalFinalaunched its offer. TotalFina initially offered four of its sharesfor every three Elf shares. The Elf counter-offer for TotalFina wasfor three Elf shares and 190 euros in cash for every five shares ofTotalFina, representing a premium of 10% to TotalFina’s closingprice 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.

“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.

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 isexpected in the next several weeks.

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