A New Industrial Project Creating Two Separate Groups:
the Board of Directors of Elf Aquitaine decided late yesterday evening to submit an offer for TotalFina including:
- New industrial project creating two completely separate pure play oil and gas and chemicals groups as soon as practicable
- Annual pre-tax synergies of 2.5 billion euros to be achieved within three years from the combination of Elf and TotalFina
- Offer of three Elf shares and 190 euros in cash for every five shares in TotalFina, representing a premium of 10% to TotalFina’s closing price on Friday 16 July, 1999 (ex dividend)
- Increased value creation for both Elf and TotalFina shareholders
The Board of Elf intends to convene a shareholders’ meeting and recommends that shareholders vote in favour of Elf’s offer for TotalFina.
Elf Chairman Philippe Jaffre commented:
"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. Our proposal will lead to a focused and high growth pure play energy group, positioned with the resources to develop on a path comparable to that of the industry leaders, and a separate chemicals group owned directly by the shareholders. In addition, this project creates the opportunity to form one of the best management teams in the industry. Together with our strong belief that we can deliver synergies exceeding twice those announced by TotalFina, our proposal combines a stronger industrial vision with a better value package for both sets of shareholders."
1. Background to the Offer
The Board has reviewed the analyses performed by the company and its financial advisors, Goldman Sachs, Banque Nationale de Paris, Morgan Stanley, Lazard Frères et Cie and Crédit Agricole Indosuez, on the basis of the draft prospectus filed by TotalFina. The Board will issue a complete response to the TotalFina offer once the prospectus relating thereto has been approved by the Commission des Opérations de Bourse.
With one abstention, the Board unanimously approved an alternative proposal, which it believes demonstrates a significantly improved industrial plan and will thus be able to deliver significant additional value to both Elf and TotalFina shareholders.
2. A New Industrial Concept for the Combined Group
As part of its continuing review of strategic alternatives, Elf had considered a combination with TotalFina. Both Elf and TotalFina agree that there is compelling logic in the combination of their respective activities. However, Elf believes that TotalFina’s proposal both undervalues Elf and does not recognise the full industrial opportunities offered by this combination. Specifically, Elf believes that the synergies that should arise from the combination will be substantially in excess of those identified by TotalFina.
Furthermore, Elf’s vision is to release the value within the new group by separating the oil and energy activities from the chemicals activities, creating the 4th largest oil group worldwide, and the 5th largest chemicals group, including the remaining shareholding of 20 % in Sanofi-Synthelabo.
3. Synergies
Elf expects to achieve annual pre-tax synergies of 2.5 billion euros from the combination – more than double those announced by TotalFina within the same three-year period, with redundancies in France identical to those identified by TotalFina.
These synergies have been specifically identified and would be achieved from a mix of organizational efficiencies, more focused exploration activities and the roll out of the improvements in business practices already identified by Elf.
Approximately 1.05 billion euros of synergy savings are expected from exploration and production, mainly from increased capital efficiencies and reduced production costs. A further 950 million euros are targeted from refining and marketing, 300 million euros from the combined chemicals activities and 200 million euros from corporate cost savings.
Incremental to these synergies is the potential to reduce the anticipated capex of the combined group by up to 1.1 billion euros.
In addition, Elf anticipates that there would be significant commercial benefits which would accrue from the combination.
4. Terms and Conditions
The transaction will be effected through an exchange offer of five TotalFina shares for every three Elf shares plus 190 euros in cash.
This represents a premium of 10% to the (ex-dividend) closing price of the TotalFina shares on Friday 16 July, 1999, and values the company at 50.3 billion euros.
The offer is conditional upon approval by Elf’s shareholders of the capital increase required to implement the offer, and the acceptance of at least 66.67% of the TotalFina shareholders. TotalFina’s shares are listed in Paris, on the New York Stock Exchange in ADS form and on the London and Brussels stock exchanges. Exchange offers will be simultaneously made to shareholders in France, the US and Belgium, and Elf intends to apply for the listing of the new shares created in connection with the exchange offer on the New York, London and Brussels Stock Exchanges.
5. Enhanced Value For Both Elf and TotalFina Shareholders
The Board of Elf strongly believes that compared to TotalFina’s offer, this proposal will deliver enhanced value to both Elf and TotalFina shareholders. This value will be created through:
- the delivery of substantially greater synergies, reflected in the enlarged group’s market value
- the creation of two separate companies best suited to create and capture value – a re-rated pure play oil group and a major chemical company with critical mass in Europe
- selected divestitures and disposals, including 15% of Sanofi-Synthelabo and other non-core chemicals and oil assets
6. Financial Impact of the Transaction
In terms of both reported cash earnings per share (pre goodwill) and cash flow per share, it is anticipated that the combination will be significantly accretive for both Elf and TotalFina shareholders from 2000.
The transaction will be accounted for under US GAAP using purchase accounting.
Elf is being advised by Goldman Sachs, Banque Nationale de Paris, Morgan Stanley, Lazard Freres et Cie and Credit Agricole Indosuez.
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This document is neither an offer to exchange or sell nor a solicitation of an offer to exchange or buy any of the securities mentioned herein, and the Offer to which this document relates is not being made in any jurisdiction in which the making or acceptance thereof would not be in compliance with the securities laws of the jurisdiction.
This document may contain forward-looking statements with respect to the financial condition, results of operations, business, strategy and plans of the Elf Group. In particular, statements using the words "expects", "anticipates", and similar expressions, and statements with regards to management goals and objectives, expected or targeted production data, trends in results of operations, margins, or the expected benefits of the tender offer referred to herein are forward-looking in nature. Such statements are based on a number of assumptions that could ultimately prove inaccurate, and are subject to a number of risk factors, including currency fluctuations, the price of petroleum products, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, environmental regulatory considerations and general economic and business conditions. The Group does not assume any obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise. Further information on factors which could affect the company's financial results is provided in documents filed with the Commission des Opérations de Bourse and the US Securities and Exchange Commission. |
