Two major French oil companies, TotalFina SA and Elf Aquitaine SA, said yesterday that they peacefully ended a hard-fought takeover battle by agreeing to a $54 billion merger that will create the world's fourth-largest oil company.

The deal was reached over the weekend with an agreement to swap 19 shares of TotalFina for every 13 shares of Elf, ending a two-month standoff during which Elf had resisted TotalFina's original 4-for-3 share-swap takeover bid and had countered with its own cash-and-stock offer for TotalFina.

Industry analysts said the deal was a defeat for Elf Chairman Philippe Jaffre, 54, who will resign after the merger is completed. TotalFina Chairman Thierry Desmarest, 53, will lead the combined company.

The new company will also retain its chemicals business, which Jaffre had argued should be spun off, although it will create a task force to study other options.

Last week, Jaffre had invited TotalFina to sweeten its takeover bid, a step that Elf said was an attempt to start merger talks. Industry analysts speculated at the time that Jaffre was under pressure from his shareholders to drop his opposition.

The final price is about 26 percent higher than Elf's stock price on July 2, the day before the first TotalFina offer, and is 5 percent higher than Friday's closing price.

The deal caps a period of rapid growth by TotalFina, which last year acquired Belgium's Petrofina and whose market capitalization has gone from about $5 billion in 1990 to about $100 billion, said Robin West, president of Petroleum Finance Corp. And it marks a shift of the center of the oil industry from the United States to Europe, he said.

Three of the four "supermajor" oil companies--huge global competitors that make what used to be known as "big oil" look like small change--now are based in Europe. In addition to the Paris-based combination of TotalFina and Elf--which is significantly smaller than the other three--they include BP Amoco PLC, which also is seeking to merge Atlantic Richfield Co. into its operations, based in London, and Royal Dutch/Shell Group, the Anglo-Dutch concern.

Of the top four, only one supermajor is based in the United States--Exxon Corp. which plans to acquire Fairfax-based Mobil Corp., a merger still awaiting approval by U.S. and European regulators. Exxon Mobil, which will have its corporate headquarters in Irving, Tex., just outside of Dallas, would be the largest of the supermajors in terms of production and oil and gas reserves.

The newest entrant into the ranks of the supermajors, the combined TotalFina and Elf, has very little presence in the United States, only some small refining and exploration and production assets. Daniel Yergin, president of Cambridge Energy Research Associates, said TotalFina has pursued acquisitions to strengthen its hand in the consolidating European market and abroad against U.S. and British-based competitors.

The recent wave of consolidation in the oil industry has been driven by the need to cut costs in what, until recently, was a very low oil price environment. TotalFina said yesterday that it plans to cut about 2,000 jobs and that it will save about $1.56 billion over the next three years.

"What we're seeing is the same sort of pattern that we're seeing in the U.S. process of consolidation," said Richard G. Gordon, executive vice president of John S. Herold Inc., an oil and gas research and consulting firm.

"There are a lot of redundant operations in these companies. They've all got refining. They've all got petrochemicals. They're all in exploration and production in the North Sea.

"It really does get just as simple as saying, if you put Total, Petrofina and Elf together, you can achieve very considerable cost savings. But do you alter the competitive environment in Europe or the North Sea? The answer is no."

TotalFina's American depositary receipts closed at $66.75 yesterday, down 62 1/2 cents. Elf Aquitaine's ADRs closed at $96.12 1/2, up $3.37 1/2.

Pooling Resources

A combined TotalFina and Elf Aquitaine would be the fourth-largest oil company, in terms of reserves.


Reserves(barrels of oil equivalent)


20.6 billion

Royal Dutch Shell

20.1 billion

BP Amoco

16.8 billion

TotalFina and Elf*

9.4 billion


6.3 billion

*Merger is pending.

NOTE: Figures are as of year-end 1998.

SOURCE: Petroleum Finance Co.