TotalFina and Elf Aquitaine
Franco-Belgian oil company TotalFina’s E59 billion acquisition of French rival Elf Aquitaine won approval from fund managers because it turned a hostile takeover into an agreed all-share merger that cut short legal wrangling and gave Elf shareholders a 26% premium on the pre-bid share price.

Fund managers were also pleased with the way the deal was fashioned to avoid the French government blocking it by using the golden share in Elf that gave the government majority voting rights.

But bankers who worked on the the deal say the government’s inaction did not represent any fundamental change to its interventionist thinking on mergers and acquisitions. One says: “The government might not have agreed if there had been more French job losses after the merger. TotalFina said it would lay off only 2,000 workers.”

Marc Pandraud of TotalFina adviser Merrill Lynch: “Elf put itself in a difficult position by saying at first that a deal with TotalFina didn’t make sense”

Advisers, TotalFina: Credit Suisse First Boston, Merrill Lynch, Paribas
Advisers, Elf Aquitaine: Banque Nationale de Paris, Crédit Agricole Indosuez, Goldman Sachs, Lazard Frères, Morgan Stanley Dean Witter
Total value: $59 billion
Payment :TotalFina equities
Premium over bid price: 26%
Listing: Paris, London, Brussels, New York (American Depositary Shares)

And the golden share doubtless penalised Elf shareholders to some extent, say fund managers. Its presence probably deterred any white knight from entering the bidding and forcing the acquisition price even higher. French treasury officials say the government has not decided the status of the golden share following the merger.

The deal, which was one of the largest among a record E1.2 trillion of European mergers in 1999, will create the world’s fourth largest oil company. The new company – TotalFina Elf – will be the largest company quoted on the Paris stock exchange once expected approval by the European Commission is gained in March. TotalFina expects the merger to deliver pre-tax savings of E1.2 billion over the next three years by trimming overlapping operations between the two companies.

Elf replied to TotalFina’s initial E42 billion hostile bid in July with a E50.3 billion counterbid for TotalFina, before agreeing to recommend a friendly all-share merger to shareholders in September on the basis of 19 TotalFina shares for 14 Elf shares.

Marc Pandraud, co-head of investment banking at Merrill Lynch in Paris, says: “Elf put itself in a difficult position by saying at first that a deal with TotalFina didn’t make sense, but it then turned around and launched a reverse merger bid.” The US bank advised TotalFina in the contest for Elf.

This ended court appeals made by both companies against procedural rulings on the two bids, including the question of offer periods, by the Conseil des Marchés Financiers, the French financial markets regulator. “If Elf and TotalFina hadn’t settled, they would still be going at it in the courts now,” said Adrian Farthing, portfolio manager at Hill Samuel Asset Management in London, in late January.