Elf betters Norsk Hydro's bid for Saga

Elf Aquitaine SA has joined the fight to take over Saga Petroleum AS, Oslo, after Norsk Hydro AS and Norwegian state firm Statoil AS reached an agreement clearing the way for Hydro's own bid.

Elf sees itself as riding to the rescue of Saga in the guise of a "white knight," having being invited to join the fray by Saga's management to prevent Hydro and Statoil splitting the independent between them.

On May 28, Elf announced a surprise cash offer for Saga at 115 kroner/share ($14.60/share), said to represent a 35% premium over the Saga share closing price on May 7.

The offer was also said to be 8% higher than Hydro's paper-only bid announced on May 10, which valued Saga at about $2.3 billion (OGJ, May 17, 1999, p. 30).

Elf's strategy

Elf Chairman and CEO Philippe Jaffré? was keen to make his bid more attractive than the Hydro offer: Elf made a bid for a stake in Saga in 1986 but was cold-shouldered, while Total met the same fate 3 years later at the hands of the nationalistic Oslo government.

In addition to making the offer in cash, Jaffré? also indicated that Elf would operate under the Saga name on the Norwegian continental shelf, to maintain the independent's "strong identity." Saga's domestic organization would form the major part of the enlarged group in Norway and would "contribute a substantial number of the management team."

Jaffré? suggested Saga would benefit from Elf's financial strength and technology, particularly for deepwater projects and high-pressure, high-temperature developments. Both these technologies would be relevant to Saga's planned Haltenbank South development. He added that Saga would enjoy "substantial autonomy" within Elf's decentralized management structure.

The Elf chief also said that "membership in the Elf group would provide Saga employees with access to international career opportunities at all levels within the worldwide organization."

Elf has been active off Norway for 30 years and is operator of the Frigg complex, for many years one of Norway's largest producers. The combined Saga-Elf assets off Norway would account for 30% of the country's proven reserves and production.

The combination

From Elf's point of view, buying Saga would increase its global sales and work force by only 3% but boost its upstream performance significantly.

Oil and gas production would soar by 20% to 1.2 million boed, while proven plus probable reserves would leap by 1.4 billion boe and proven reserves by 867 million boe, or 24% of the group's total, at a price of $4.50/bbl.

The combined group's reserves would also be more balanced geographically: Africa's share would fall from 61% to 49% while North Sea assets would rise from 36% to 48%.

Also, Elf's comparatively small European gas reserves would be hiked by 70%, and its gas export pipeline capacity from the North Sea to continental Europe would increase to 8% of the group's total from 5%.

Jaffré? also highlighted "substantial synergies" between Elf and Saga. They are already partners in 20 of the 34 North Sea fields in which Saga holds assets.

He anticipates that economy-of-scale savings and productivity gains within Saga, plus optimization of exploration programs, could generate pretax savings of 1 billion kroner/year ($130 million/year) beginning in 2001.

However, Jaffré? said these gains would require an estimated 500 million kroner ($65 million) pretax in reorganization charges as well as "substantial job cuts."

The offer is subject to Elf obtaining at least 67% of Saga's shares and would be financed from Elf's resources, including the sale of noncore assets. This could include the sale of up to 15% of Elf's 35.3% stake in the recently formed pharmaceuticals joint venture Sanofi-Synth?labo, which could raise about 4.5 billion euros ($4.3 billion).

Hydro bid update

Saga has not yet received a detailed bid from Hydro and has declared itself willing to study all offers.

A Norsk Hydro official told OGJ the company is formalizing its bid but would have to submit it to stock exchanges before it would be made public.

Last week, a planned joint bid for Saga by Hydro and Statoil was abandoned, but instead Hydro and Statoil agreed that Statoil would be given 25% of Saga's assets if Hydro's bid were accepted, to replace Statoil's existing 20% interest in Saga (OGJ, May 31, 1999, Newsletter).