French Oil Giant Total Fina Bidding for Elf Aquitaine

In the latest wave of oil merger activity, France’s largest oil company, Total Fina, launched a $43-billion hostile takeover bid Monday for rival Elf Aquitaine in a move that, if successful, would create the world’s fourth-leading oil company in terms of market share.

The bid was a further sign of the new aggressive mood in French business, but it wasn’t welcomed by Elf, whose board said the offer had “not been the subject of any study or discussions.” It contended that the deal, which it will study, was not in its shareholders’ interests.

Total Fina is offering Elf shareholders four Total Fina shares for three Elf shares. The all-stock offer is conditional upon shareholders holding at least two-thirds of outstanding shares accepting the offer.

The new company would be Europe’s third-largest oil group, after Royal Dutch Shell and BP Amoco, and would probably enjoy strong growth in output and be better able to compete with its U.S. and European rivals, analysts said.

“For middle-sized oil companies such as Total and Elf, this is the only way to compete with the big industry players,” said Hugues de la Presle, an analyst at Standard and Poor’s in Paris.

Before this year, a hostile takeover bid by one French company for another was all but unheard of. But the Total Fina move follows the continuing hostile takeover fight by French bank Banque Nationale de Paris for rivals Societe Generale and Paribas.

“French business leaders are feeling a little more brave,” De la Presle said.

Total Fina and Elf have been under pressure to increase in size amid rapid recent consolidations in the U.S. and Europe. Exxon Corp. plans to acquire Mobil Corp., creating the world’s largest oil company, while BP Amoco plans to purchase Atlantic Richfield Co.

Even Total Fina is a product of the industrywide consolidation, the result of Total’s acquisition of Belgium’s Petrofina.

Elf in particular has been considered too small to develop current exploration assets to their full potential, and for long-term expansion. Earlier this month, Elf lost a battle to buy Saga Petroleum, Norway’s third-largest oil company.

Analysts said the combination would make the company the world’s leading downstream presence in West Africa, expanding further Elf’s vast portfolio there.

Elf, at the time the French state’s largest concern, was privatized in 1994. The French government no longer has an equity stake but retains a so-called golden share, allowing it to veto any takeover bid.

But Total Fina Chairman Thierry Desmarest said Monday he had “every reason to be optimistic” that the government will use its golden share in Total Fina’s favor.

The offer represents a 15% premium for Elf shareholders compared with Friday’s closing price, and a premium of around 20% of the average price during the last six months.