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Tuesday, July 6, 1999

France's Total Fina launches $43 billion hostile bid for Elf

By Ian Phillips
Associated Press

   PARIS - In the latest wave of oil merger activity, France's largest oil company, Total Fina SA, launched a $43 billion hostile takeover bid Monday for rival Elf Aquitaine SA in a move that, would create the world's fourth leading oil company in terms of market share.
   The bid was a further sign of the new aggressive mood in French business, but wasn't welcomed by Elf, whose board said the offer had "not been the subject of any study or discussions." It claimed the deal, which it will study, was not in its shareholders' interests.
   Total Fina is offering Elf shareholders four Total Fina shares for three Elf shares. The all-stock offer is conditional upon shareholders holding at least two-thirds of outstanding shares accepting the offer.
   The new company would be Europe's third largest oil group, after Royal Dutch Shell AG and BP Amoco PLC, and would likely enjoy strong growth in output and be better able to compete with its U.S. and European rivals, analysts said.
   "For middle-sized oil companies such as Total and Elf, this is the only way to compete with the big industry players," said Hugues de la Presle, an analyst at Standard and Poor's in Paris.
   Before this year, a hostile takeover bid by one French company for another was all but unheard of. But the Total Fina move follows the continuing hostile takeover fight by French bank Banque Nationale de Paris SA for rivals Societe Generale SA and Paribas SA.
   "French business leaders are feeling a little more brave," De la Presle said.
   Total Fina and Elf have been under pressure to increase in size amid rapid recent consolidation in the sector in the U.S. and Europe. Exxon Corp. plans to acquire Mobil Corp., creating the world's largest oil company, while BP Amoco plans to purchase Atlantic Richfield Co.
   Even Total Fina is a product of the industrywide consolidation, the result of Total SA's acquisition of Belgium's Petrofina SA.
   Elf in particular has been considered too small to develop current exploration assets to their full potential, and for long-term expansion. Earlier this month, Elf lost a battle to buy Saga Petroleum, Norway's third largest oil company.
   Pierre Terzian, editor of Petrostrategies, a Paris-based petroleum weekly, said that Elf's failure played a part in the timing of Monday's bid.
   "The group is a little demoralized and there have also been recent strikes by workers," he said. "If Total had waited, the situation could have been very different."
   Terzian said that, although a successful resolution looked "difficult," he believed it would reap rich rewards.
   "The two companies complement each other greatly. For example, Total is strong east of the Suez, and Elf is strong in West Africa," he said. "Also, production is going to increase in 2001, or before."
   Analysts said the combination would make the company the world's leading downstream presence in West Africa, expanding further Elf's vast portfolio there.
   Elf, at the time the French state's largest concern, was privatized in 1994. The French government no longer has an equity stake, but retains a so-called golden share, allowing it to veto any takeover bid.
   It said late Monday, however, that since the merger would not threaten national oil supplies, it does not plan to block the bid.
   "It is not up to public powers to judge a deal between two private companies," French Finance Minister Dominique Strauss-Kahn said in a statement.
   The offer represents a 15 percent premium for Elf shareholders compared with Friday's closing price, and a premium of around 20 percent of the average price over the last six months.