|
Total seals $54B Elf deal
|
 |
September 13, 1999: 10:59 a.m. ET
French oil battle ends after Total raises its all-stock offer by 10 percent
|
LONDON (CNNfn) - The bitter takeover fight between French oil giants Elf Aquitaine and TotalFina ended Monday after the companies agreed to merge, creating the world's fourth-largest oil company in a deal valued at approximately 52 billion euros ($54 billion).
Total raised its all-stock offer for Elf by 10 percent, sufficient to win over its rival's management and end the two-month standoff.
The deal is but the latest in a series of consolidation moves that has characterized the global oil industry in the past 12 months. BP (BPA) started the ball rolling with its $49 billion takeover of Amoco, but that deal was swiftly followed by multi-billion dollar ties between Spain's Repsol and Argentina's YPF, Total's purchase of Petrofina, Mobil's pending mega-deal with Exxon and the $2.6 billion takeover of Saga Petroleum by fellow Norwegian group Norsk Hydro.
These deals have primarily been driven by "cost-cutting on the downstream [refining and marketing] side," according to Peter Hitchens of Williams de Broe.
The Total-Elf deal is based on a similar premise, and the company's statement said that the new company would be organized by operating segment, with the aim of generating merger-related synergies. TotalFina chairman Thierry Desmarest told a news conference that annual savings of $1.56 billion will be squeezed out of the new company.
The deal also marks the conclusion of another huge hostile takeover battle in France, a phenomenon that was almost unheard of before this year. As well as the oil battle, France has witnessed a bitter three-way banking battle between BNP (PBNP), Société Générale (PGLE) and Paribas (PPM) that concluded this summer. In addition, Paris-quoted luxury goods giant LVMH (PMC) pursued an active hostile campaign against rival Gucci, although was ultimately unsuccessful in its takeover attempt.
French takeovers were previously conducted in a cozy and unthreatening fashion. France's business elite is a tightly knit community, with many bosses a product of the exclusive Ecole Nationale post-graduate colleges, which also often furnish the country's political leaders.
The pressure to break old ties is being wrought by increased globalization and competition, and can be seen in the agonized reaction of French authorities such as the Bank of France, which attempted to broker a politically expedient solution in the bank struggle.
Cut-throat oil competition
TotalFina and Elf Aquitaine are both integrated oil companies. Total has traditionally been stronger in the refining and marketing business, but has made great strides in recent years to beef up its upstream exploration and production activities. Together the companies employ some 140,000 people, although some 2,000 of these jobs are due to disappear.
They own more than 18,000 service stations, most of these in France. The French market has suffered cut-throat competition at the gas pump in recent years, as giant supermarket retailers have sought to muscle into the business. Improving the returns on this business will be a key challenge for the new group's management.
Some three-quarters of TotalFina's refining activities are in Europe, a region where margins have been wafer-thin due to overcapacity in recent years.
Together, the two companies clearly rank fourth in terms of oil and gas output, ahead of Chevron. However, they remain well behind the giants of the sector: Exxon/Mobil, Royal Dutch/Shell and BP Amoco/Arco.
"There was huge pressure on Elf to come to an agreement," said analyst Peter Hitchens of Williams de Broe, "The French government didn't want a messy situation, and Elf's (counter-)bid was not accepted as credible by the market."
Both stocks were temporarily suspended in Paris Monday, and when trading resumed investors pushed TotalFina stock down 3.5 percent to 125.4 euros, while Elf shares gained a fraction to 181.3 euros.
Desmarest the clear winner
Chairmen Thierry Desmarest of TotalFina and Elf's Philipe Jaffré recommended the deal to shareholders Monday. It's a clear victory for Desmarest, who will be chairman and chief executive of the new company. Jaffré plans to retire as soon as the deal is completed.
"With Jaffré out of the way, the merger should be easier to pull together," commented Hitchens, adding, "Total will be running the show."
TotalFina's original offer sparked a counter-bid from Elf, but that offer has now been withdrawn, and both companies agreed to call off all pending litigation.
The companies' statement claimed the deal was "amicable" and "on an equal footing".
Sticking points
One of the key sticking points has not yet been addressed, however. A crucial difference between the companies' merger plans was the future of their chemical operations. Total wanted to maintain the unit as an integral part of the new company while Elf executives demanded these businesses be divested.
In a statement the companies said "a joint study group will evaluate the necessary changes in the chemicals organization".
Analysts scoffed at the wording. "In other words, it will go Total's way," said Hitchens of Williams de Broe.
A white knight is regarded as unlikely to appear at this late stage, given the tacit French government approval for an all-French solution.
TotalFina will pay 19 of its shares for very 13 Elf shares, up from the original offer of four TotalFina shares for every three Elf shares launched on July 5th.
But the European Commission could derail, or at least impede, the deal.
The Brussels-based executive arm of the European Union is charged with investigating competition concerns, and the combined TotalFina-Elf would possess a significant number of gas stations in France. The commission is almost certain to order an investigation to check that the enlarged group does not have market-dominating powers.
|
|
|
|
|
|
TotalFina
Elf Aquitaine
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
