Elf Aquitaine SA is preparing a plan to fight off a takeover bid by TotalFina SA, but exactly when details of the plan will be announced is not clear.
On July 5, TotalFina surprised Elf with a 42 billion euro ($41.2 billion) takeover bid, in which four TotalFina shares would be exchanged for three Elf shares.
Elf Chairman and CEO Philippe Jaffré promptly declared TotalFina`s bid to be hostile, while TotalFina said its offer represented a premium of 15% over Elf`s closing share price preceding the move (OGJ, July 12, 1999, p. 22).
An Elf official told OGJ on July 13 that the company is required to file a statement with the Paris stock exchange authorities on July 22, to say whether or not the company will accept TotalFina`s offer.
"Jaffré has said he is going to fight," said the official. "Elf is taking time to plan its defensive strategy, which Jaffré will present to the board for its vote of approval."
Once the strategy has been approved, it will be made public, said the official. However, because the board meeting had not been scheduled as of presstime, the timing of the announcement was unknown.
Earlier, Jaffré told Elf executives that TotalFina was approaching Elf "to look for what it lacks. It is coming to do its shopping by breaking and entering. Elf is the master of its destiny. Total`s hostile bid will fail."
WoodMac view
Meanwhile, petroleum industry analysts have published their evaluations of the bid, with most seeing TotalFina`s plan as a sound strategic move.
Wood Mackenzie Consultants Ltd., Edinburgh, sees benefits for combining the two companies in exploration and production, refining and marketing, and in chemicals, with Elf`s healthcare assets ripe for disposal.
The analyst noted that TotalFina and Elf have combined reserves of 6.3 billion bbl of oil and 19.1 tcf of gas, while combined production at the end of 1998 was 2.04 million boe/d.
"The two companies have similar levels of reserves in Europe," said Wood Mackenzie, "predominantly in the North Sea. Elf`s position in Africa would strengthen TotalFina`s position in this part of the world, where further reserves additions are expected by both companies from recent discoveries in Angola.
"Elf has no significant reserves outside its core areas of Europe and West Africa, and, unlike TotalFina, does not have non-consolidated reserves, which stem from production-sharing contracts in the Middle East. The addition of Elf would lower TotalFina`s weighting to gas."
In refining and marketing, a merged TotalFina-Elf would be the world`s fourth largest player, behind Exxon Mobil Corp., BP Amoco plc, and Royal Dutch/Shell.
"The merged company," said Wood Mackenzie, "would have shares in 27 refineries with a combined distillation capacity of 2.485 million b/d. However, the company would be primarily a European refiner and would be the largest refiner in Europe, with a distillation capacity of 2.098 million b/d, almost 500,000 b/d ahead of the current number one player, Exxon."
Rationalization of the merged company`s refining capacity in France would be required, said the analyst, to improve the quality of the portfolio and overcome competition concerns.
In France, a combined TotalFina-Elf would have seven refineries with a combined distillation capacity of 1.03 million b/d, plus 6,216 gasoline stations with total sales of 1.23 million b/d.
"There does look to be a good synergistic fit between the two companies within the downstream sector outside France, "said Wood Mackenzie, "where a high degree of overlap gives scope for considerable portfolio rationalization.
"The potential for cost savings and improved efficiency in refining and marketing is significant and must be one of the main attractions of the deal as far as TotalFina is concerned.
In petrochemicals, the analyst said the assets fit appears complementary and the firm would become a major player in the U.S. In specialty chemicals, Elf`s global leadership in thiochemicals and fluorochemicals would be added to TotalFina`s already strong position in adhesives, resins, and acrylics.
Salomon Smith Barney view
Salomon Smith Barney Inc., London, said TotalFina`s bid to acquire Elf is a bold move that would propel the enlarged company within range of the "super league" of majors: BP Amoco, RD/Shell, and Exxon Mobil.
"The proposed deal," said Salomon, "would alter the European oil sector more radically than did the BP-Amoco marriage. The merger continues the trend towards `big oil` as a means to compete more effectively for the most attractive upstream returns, to reduce costs, and to extract synergies.
"TotalFina-Elf would be on course to become the fourth supermajor. The focus on the large stocks could further sideline the smaller regional players and the independent U.K. exploration and production stocks. Asset stripping could throw out interesting opportunities for these players, but this might not be enough to captivate investors` interest."
While doubts had been raised about the ability of TotalFina and Elf individually to take full advantage of available upstream opportunities, Salomon said that improved financial strength of the combine, coupled with almost $6 billion worth of planned disposals, should enable aggressive upstream investment.
The analyst reckons that TotalFina-Elf would not need to dispose of refining assets in France, despite a 48% market share, because Italy`s ENI and Repsol SA of Spain maintain similar shares in their home countries.
"We expect a reduced investment burden to meet the 2005 (European Union transport fuel) specification proposals, which is a benefit that would accrue from 2003.
"In marketing, logistics and overhead savings would be captured in a similar manner to the BP-Mobil joint venture. Overall, TotalFina has identified a potential 500 million euros ($490 million) worth of synergies available in R&M from the merger with Elf."
In petrochemicals, Salomon Smith Barney said a merger would cement TotalFina`s position in polypropylene, polystyrene, and polyethylene, while increasing its market share in adhesives: "TotalFina does plan some chemicals divestments to bring the overall percentage of identifiable assets down to 25% from 28%. This should also reduce future cyclicality of earnings."
Salomon Smith Barney said that TotalFina would maintain its aim, if the Elf takeover bid succeeds, to have an asset split of 50% upstream and 50% in refining and marketing and chemicals.
