Oil Giants Engage in High-Stakes Battle: TotalFina's €49.7bn Counterbid for Elf Aquitaine Raises Questions about Future Leadership

Strategic Insights -

The merger between TotalFina and Elf Aquitaine, sparked by a hostile takeover bid, has reached a critical juncture. Institutional shareholders are closely watching the developments, with some applauding the speed of TotalFina's response and others questioning who will run the new company. The outcome hinges on the experience and credentials of the two CEOs, Thierry Desmarest and Philippe Jaffre. Desmarest, chairman of TotalFina, has a reputation for balancing the company's downstream and upstream activities, while Jaffre has won praise for his restructuring efforts at Elf. Despite concerns about the bid's valuation, some shareholders see a merger as "impeccable industrial logic," with the potential for significant synergies and cost savings.

Key Takeaways:

  • TotalFina's counterbid for Elf Aquitaine has sparked intense debate among institutional shareholders, with some applauding the speed of the response and others questioning who will run the new company.
  • Shareholders believe that the outcome will depend on the industry experience of the two CEOs, Thierry Desmarest and Philippe Jaffre, with Desmarest's seasoned oil background being seen as a key factor.
  • TotalFina's more modest savings target of €1.2bn from a merger has been seen as low, whereas Elf's estimate of €2.5bn in annual synergies has raised the stakes and become the new benchmark.
  • Some investors have raised concerns about the wisdom of Elf's proposal to divest its chemicals business into a separate company, arguing that it could be restructured within the newly merged group more effectively.
  • The high level of common ownership between TotalFina and Elf Aquitaine, estimated to be up to 70%, may lead to TotalFina only slightly sweetening its offer to win over more shareholders.
  • Asset managers, such as Dino Fuschillo of SG Asset Management, believe that TotalFina's management has the calibre to integrate the two companies successfully and meet restructuring targets.

Statistics:

  • TotalFina's counterbid for Elf Aquitaine is valued at €49.7bn, a significant increase from its earlier offer of €44bn.
  • Up to 70% of institutional shareholders could own stakes in both TotalFina and Elf Aquitaine, suggesting that a merger could be more easily accomplished with fewer hurdles.
  • Elf's claim of €2.5bn in annual synergies from a merger has raised the stakes and become the new benchmark for investors.
  • TotalFina's estimated €1.2bn in savings from a merger is seen as low and likely to be exceeded as restructuring gets underway.

Sources:

  • Financial Times Limited 1999.