After TotalFina SA made a takeover bid for Elf Aquitaine SA early this month, Elf Chairman and CEO Phillippe Jaffr? kept markets waiting for a response.
TotalFina`s bid valued Elf at 42 billion euros ($42.8 billion) and was welcomed by the financial community as a sound proposal. Jaffr?`s plight was made worse by the French government`s approval of the offer (OGJ, July 12, 1999, p. 22).
Royal Dutch/Shell, Chevron Corp., and Ente Nazionale Idrocarburi (ENI) were identified by analysts as potential "white knights." Another scenario had Elf merging with BG plc to sidestep TotalFina`s advances.
The speculation was rendered void when the French government said it would not allow a foreign company to buy interests in Elf. It appeared as though the government had left Jaffr? with no place to run.
White rabbit
Like a magician pulling a white rabbit from a top hat, Jaffr? confounded the markets on July 19 by making a counterbid to take over TotalFina.
Elf offered three Elf shares and 190 euros ($194) in cash for every five shares in TotalFina, which valued the new Franco-Belgian major at 50.3 billion euros ($51.3 billion).
In a press statement, Elf said it had considered a combination with TotalFina as part of its continuing review of strategic options and agreed with TotalFina that there was a compelling logic behind a merger.
"However," said Jaffr?, "we believe that TotalFina`s unwelcome offer both undervalues the contribution of the Elf shareholders to the combination and misses the opportunity to create a new industrial project."
Jaffr? reckons that by creating two separate units-the world`s fourth largest oil and gas group and the world`s fifth largest chemicals group-Elf would be able to deliver twice the synergies promised by TotalFina.
Elf claims it could save 2.5 billion euros/year ($2.55 billion/year) from the combine, compared with TotalFina`s 1.2 billion euros/year ($1.22 billion/year). Like TotalFina, Elf envisaged 4,000 job losses.
Elf expects to save $1.07 billion/ year in exploration and production-mainly from increased capital efficiency and reduced production costs-plus $970 million/year in refining and marketing, $306 million/ year from combined chemicals operations, and $204 million/year in corporate costs.
Next move
Trading in both shares was suspended for most of the morning of July 19, but early reports indicated that market response was skeptical.
One report said an analyst at a French bank thought that Elf had been backed into a corner and had to make some response but that the "estimated synergies appear to be very, very high."
Following Elf`s move, TotalFina issued a terse press statement: "TotalFina notes that Elf Aquitaine`s chairman now recognizes the advantages of a merger between the two French oil companies, after having rejected first its principle and then the project itself."
TotalFina`s board was due to meet "within the next few days" and was "confident of its ability to implement the project." It will be hard pressed, though, to dream up a more surprising move than Jaffr?`s counterattack.