TotalFina, Elf Aquitaine agree terms for merger

France's two largest oil companies, TotalFina and Elf Aquitaine, have announced they will merge, creating the world's fourth-largest oil company, after Exxon, Shell and the BP/Amoco/Arco group. The French companies were previously ranked sixth and eighth worldwide.

Although the companies said they were uniting "on a friendly basis and on an equal footing", TotalFina's chairman, Mr Thierry Desmarest, is clearly the winner of the takeover battle that began with his surprise raid on his smaller rival Elf Acquitaine on July 5th. The Elf chairman, Mr Philippe Jaffre, will step down, "considering that the agreement he negotiated is in the interest of Elf's shareholders, teams and employees," a joint statement issued after meetings of the two boards yesterday said.

Messers Desmarest and Jaffre spent the entire weekend finalising arrangements. TotalFina Elf will have 130,000 employees, but 4,000 jobs will be lost through "synergies". Union representatives said they were pleased that a "consensual, Franco-French" agreement was reached, but will oppose firings.

In what is known as a "Pac Man defence" - after the electronic video game where the amoeba-like character gobbles up his attacker - Mr Jaffre had made a counteroffer for Totalfina two weeks after its July 5th raid on Elf.

Mr Jaffre wanted to separate the group's petroleum and chemical activities into different companies, an idea rejected by Mr Desmarest.

Through legal action, Mr Jaffre had the option of delaying the outcome until October, but both men were eager to avoid a repeat of the seven-month French banking takeover saga which ended badly for all three of its protagonists on August 28th. Rumours that the Italian company ENI might come to Elf's rescue gave TotalFina an incentive to improve its bid. The final offer of 19 TotalFina shares in exchange for 13 Elf shares represents a 9.6 per cent increase, and cost TotalFina an additional €4 billion.

TotalFina Elf will be the new giant of the Paris bourse, with capitalisation of €95.47 billion, displacing France Telecom (€79.04 billion). The Carrefour-Promodes food distribution group, created by a friendly merger only two weeks ago, is the third biggest French company, capitalised at €54.09 billion.

Mr Desmarest (53) is now "France's top boss", Le Monde said. A graduate of the Ecole Polytechnique and the Ecole des Mines, he has spent most of his career in oil exploration and production. In 1997, he defied a US embargo by concluding a huge contract with Iran. The following year, his takeover of the Belgian Petrofina enabled Total to surpass Elf Aquitaine, until then France's biggest oil company.