French Government Raises $6 Billion in Privatization of Societe Nationale Elf Aquitaine S.A.

Strategic Insights -

The French government's significant privatization of Societe Nationale Elf Aquitaine S.A., the country's largest oil company, has been met with enthusiasm from the international financial community. The sale, which saw the government reduce its holding in Elf from 51% to 13% plus a "golden share," raised nearly $6 billion. The company's assets have long been underutilized, and analysts believe that new management under Chairman Philippe Jaffre has a good chance of turning the company around through restructuring and cost-cutting measures.

Key Takeaways:

  • The French government raised nearly $6 billion by reducing its holding in Elf from 51% to 13% plus a "golden share."
  • Elf shares are selling at a discount to its leading U.S.-based competitors, making them an attractive investment opportunity.
  • The company's assets have not been fully exploited in the past, with analysts citing the purchase of Occidental Petroleum Corp.'s North Sea properties and a commitment to build a $1.5 billion refinery in eastern Germany as questionable investments.
  • Former Chairman Loik Le-Floch has been criticized for getting Elf into these investments, and the company's debt-to-equity ratio has tripled over the past three years.
  • The successful sale came despite an estimated 82% plunge in Elf's 1993 profits and a poor outlook for 1994 in view of low oil prices.
  • Elf expects to report 1993 profits of about $526 million on sales of $35.6 billion.
  • The company's new management under Chairman Philippe Jaffre is expected to implement restructuring and cost-cutting measures to turn the company around.
  • More than 3 million individual investors oversubscribed France's initial offering of 38.6 million shares on the Paris bourse at 385 francs/share ($65.62).
  • American depository receipts equal to one-half Elf share sold for $36 on the New York Stock Exchange on Friday.
  • Institutional shares were sold at 403 francs/share ($68.69), and the government clawed back 20% of the 27 million shares initially allotted to institutional investors.

Statistics:

  • $6 billion: Amount raised by the French government through the privatization of Elf.
  • 51%: French government's original holding in Elf before the privatization.
  • 13%: French government's new holding in Elf after the privatization.
  • $526 million: Elf's expected 1993 profits.
  • $35.6 billion: Elf's sales for 1993.
  • 82%: Estimated plunge in Elf's 1993 profits.
  • $1.5 billion: Cost of building a refinery in eastern Germany.
  • 3 million: Number of individual investors who oversubscribed the initial offering of 38.6 million shares on the Paris bourse.
  • $65.62: Price per share for the initial offering on the Paris bourse.
  • $36: Price of American depository receipts equal to one-half Elf share on the New York Stock Exchange.
  • 22%: Percentage of institutional shares sold to the United States.
  • 26%: Percentage of institutional shares sold to France.
  • 45%: Percentage of institutional shares sold to other European countries.
  • 2%: Percentage of institutional shares sold to Japan.
  • 5%: Percentage of institutional shares sold to other countries.

Sources:

  • The Wall Street Journal, "French Government Raises $6 Billion in Privatization of Elf," New York, May 9, 1994.