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Monday, September 13, 1999 Published at 15:32 GMT 16:32 UK


Business: The Company File

TotalFina and Elf agree 'friendly' merger



French oil giants TotalFina and Elf Aquitaine have agreed to merge, creating the world's fourth-largest oil company and ending a bitter take-over battle that had dragged on for months.


The BBC's James Coomarasway: The French are developing a taste for mega-mergers
During the boardroom war, both companies had tried to outbid each other, while fighting a legal battle on the sidelines.

The amicable deal reached now fits in with the strategy of the French government to bolster 'national champions', which can survive in the highly competitive global economy.

Job losses

The merger will result in the loss of 2,000 jobs in France over three years, though the jobs will be cut without forced redundancies.

The deal values Elf Aquitaine at 52.6bn euros ($54.3bn, £33.7bn).

TotalFina said it was offering 19 of its shares for 13 Elf shares, up from its initial bid of four TotalFina shares for three Elf.

Total(ly) in charge

Elf shareholders will hold a majority stake in the new company, owning 51.7% - up from the first offer of 49.4%.

However, on the management side it is clear that TotalFina is taking the reins.

TotalFina's chairman, Thierry Desmarest, will head the new group. The board will comprise nine Elf directors, nine TotalFina directors and four directors representing the Belgian shareholders within the TotalFina board.

In a statement, Elf Chairman Philippe Jaffre said he considered the negotiated agreement to be in the best interests of shareholders, management and Elf employees and that he would step down once the offer had been completed. Mr Jaffre had been in charge of Elf Aquitaine for the past six years.

TotalFina itself is the result of a merger of French company Total and Belgium company Petrofina earlier this year.

Market reaction

TotalFina shares sagged on the news of the merger, as the premium paid for Elf was at the higher end of expectations.

Elf shares, in contrast, gained more than 2.5%.

"There's relief all round that they've stopped wasting time. The new bid was at the higher end of my range. Nevertheless, it appears as though it will be earnings enhancing from 2001," said Irene Himona, analyst at ABN Amro in London.

Chemicals are part of the deal

In its bid proposal, Elf Aquitaine had suggested to spin off the combined chemicals business. This plan, however, appears to have been dropped. In a statement, Elf said that the "chemicals segment will pursue a policy of growth and the integration of its different sectors to maximise synergies". 

Nine-week battle


[ image: Elf fought a two-months long battle to avoid a hostile take-over]
Elf fought a two-months long battle to avoid a hostile take-over
The take-over battle had begun in early July, when TotalFina made a hostile take-over bid for rival Elf.

Elf responded two weeks later with a counter-bid, promising to spin off the group's chemical activities.

The battle over shares soon moved to the courts with claims and counter claims - however, both companies now say that they are "committed to the withdrawal of all present litigation".

TotalFina's initial bid had been valued at about $51bn.

Oil giants

The new group will be the largest French firm by market capitalisation ahead of France Telecom.

But in the world of the oil giants, the company is at best of moderate size.

Although the number four in the world, the combination of TotalFina and Elf Aquitaine will be less than half the size of the supermajors Exxon Mobil, Royal Dutch Shell and BP Amoco.

But the French merger has clearly been prompted by link-ups among its giant rivals. Just a year ago, Exxon and Mobil created the world's largest oil company.

Anglo-Dutch company Shell is the second-largest oil producer in the world - and still going it alone.

British Petroleum did two consecutive deals with US-based oil companies, first Amoco and then Atlantic Richfield, which confirmed its position as the number three in industry rankings.





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Relevant Stories

19 Jul 99 | The Company File
Elf counterbid for Totalfina

05 Jul 99 | The Company File
TotalFina bids for rival Elf





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