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Elf rejects Total again
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July 23, 1999: 8:27 a.m. ET
French oil company spurns rival's offer of amicable solution to hostile bid
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LONDON (CNNfn) - French oil group Elf Friday rejected an attempt at rapprochement by Franco-Belgian rival and hostile suitor TotalFina, reiterating its opposition to the $44 billion all-stock bid.
The Elf board issued a statement repeating its rejection of Total's approach, claiming the bid undervalued its assets. It also poured scorn on a suggestion Thursday from its pursuer's chairman Thierry Desmarest that the two sides should re-open talks and come to an amicable settlement.
"This offer is unsolicited. The chairman of TotalFina never presented a merger plan to Elf's chairman. There were neither preliminary discussions, nor negotiations," the company said in a statement.
Analysts support the view that Total's approach is bad news for Elf. "We believe it is not in Elf's shareholders interests," Ranald Wright at Credit Lyonnais Securities in London told CNNfn.com.
But he also criticized Elf for launching its so-called "Pac-man defense" counter bid earlier this week for Total, which valued the latter around $51 billion.
Elf chairman Philippe Jaffre conceded as much to shareholders last Tuesday, the day after unveiling the counterbid. He accused the government, which holds a veto over any major strategic decisions, of restricting the company's defense strategy. Politicians support an all-French solution.
"I am sorry for you the shareholders to be in this position. I'm not sure this will be the best solution for you, but we have to do the best in the circumstances," Jaffre said.
Analysts critical of a merger point to the lack of deliverable cost-cutting between Elf and Total due to foreseeable French union opposition to any large job cuts, like the ones made following the well-received BP takeover of Amoco at the start of the year.
Elf is also largely exposed to so-called "upstream" operations, the process of exploring, drilling and producing crude oil and gas. Total, in contrast, has a heavier "downstream" bias, focused on the refining of the crude products into gasoline and chemical products.
Upstream producers have benefited recently as the oil price picked up from 25-year lows in late February. But there appears little let up for downstream operations.
Massive global refining overcapacity has left margins in this area at 10-year lows and led to the recent announcement from BP Amoco that it planned to dispose of $3 billion worth of downstream assets.
One analyst, who asked not to be identified, pointed out that Total was driven to bidding for Elf in an attempt to dilute the acquisition of Belgim's PetroFina, whose operations are weighted toward the downstream side.
Moreover, Total felt it had to head off a possible tie-up between Elf and Italy's Eni, which could have left the Franco-Belgian group isolated, the analyst argued.
The analysts would not discount resumption of talks between Elf and Eni, pointing out that the two were a "much better fit." But he also noted that at present the "market has priced in a Total victory."
Total's stock slipped 1.55 percent to 120.5 euros in early afternoon trade in Paris, while Elf's shares rose 0.5 percent to 165.9 euros.
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Elf Aquitaine
Total
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