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TotalFina sets $44B Elf bid
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July 5, 1999: 6:40 p.m. ET
Hostile deal would form world's 4th-largest oil producer; bidding war seen
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LONDON (CNNfn) - France's largest oil company, TotalFina, launched a hostile $44 billion takeover bid for rival Elf Aquitaine Monday, a move that could ignite a bidding war for the No. 2 French oil producer.
TotalFina offered a four-for-three stock swap valued at 42 billion euros ($43.7 billion) for Elf, a bid that, if completed, would create the world's fourth-largest oil company with a market value of around $84 billion.
TotalFina's move would represent the third-largest takeover in the fast-consolidating oil sector after Exxon's (X) $80 billion offer for Mobil and BP's $55 billion purchase of Amoco in 1998 to form BP Amoco (BPA ).
TotalFina said its offer was driven by the companies' "exceptional strategic fit" and the need to meet restructuring challenges elsewhere in the industry.
Elf quickly said the offer was not in the best interests of shareholders and that it would convene a board meeting to discuss the move. The investment bank Goldman Sachs (GS) is advising Elf on how to fend off the bid, banking sources told Reuters news agency.
The offer, which requires acceptance by two-thirds of Elf shareholders and approval from regulators, represented a 15 percent premium to Elf's closing stock price Friday. But Elf stock jumped 21 percent to 177.30 euros in Paris, a sign that some investors expect another bid to emerge.
The surprise bid got a boost late Monday when the French government said it would not block the offer by using its so-called golden share in the targeted company, noting the bid would not be contrary to France's national interest. The French government sold Elf to private investors in 1994 but retained stock giving it strategic decision-making powers.
Elf's cool response led analysts to speculate that other bidders may emerge, with Royal Dutch/Shell and Italy's ENI said to be contenders. Shell shares rose 2.4 percent in London while ENI jumped 2.2 percent in Milan. Oil stocks also got a boost as prices for crude oil rose to their highest level in 19 months Monday.
"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," TotalFina Chairman Thierry Desmarest said.
He said he had tried to persuade his counterpart at Elf, Philippe Jaffré, to agree to a merger prior to launching the hostile bid.
But analysts said a higher bid for Elf was likely, noting Elf itself last month was outbid for Norway's Saga Petroleum, losing out to the industrial company Norsk Hydro and state oil firm Statoil.
"The bidding has just begun," Peter Bogin at Cambridge Research Associates told Reuters, referring to TotalFina's bid for Elf. "It will be fascinating to see how the battle develops."
Jeremy Elden at Commerzbank said other bidders could include Shell, Italy's ENI and Chevron.
Elf, which focuses on drilling and production in the North Sea and Africa, has oil and gas reserves of 3.64 billion barrels compared to TotalFina's 5.08 billion barrels, concentrated in the Middle East and Asia. Elf also holds a 30 percent stake in Spanish oil firm Cepsa.
TotalFina said the deal would generate annual pretax savings of 1.2 billion euros ($1.25 billion) over three years, part of that from cutting 4,000 jobs.
Analysts said the bulk of savings would come from streamlining the companies' domestic gas station network. Half the job cuts are expected in France.
TotalFina also said it planned to sell assets worth more than 6 billion euros ($6.2 billion), which analysts said would probably be Elf's health-care businesses.
-- from staff and wire reports
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TotalFina
Elf Aquitaine
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