Total-Petrofina merger likely to get Commission go-ahead

Date: 10/12/1998

By Renée Cordes

ANALYSTS believe Total SA's takeover of Petrofina SA will be unconditionally cleared by the European Commission as the merged company will not have a significant market share in any individual sector or region.

France-based Total announced earlier this month that it planned to buy 41&percent; of Belgium's Petrofina for about 10 billion ecu, creating the world's sixth-largest and Europe's third-largest publicly traded oil company.

“The merger will pass through clearance without any problems,” said Francois Poullet, an analyst at Bank Brussels Lambert. “The market share of the combined company will increase, but the maximum market share in any region will be about 25&percent;.” That compares to 50&percent; for Spain's Repsol SA and 30&percent; for Italy's Eni SpA.

The new company is expected to expand its offshore exploration and production activities in the US and Angola. Although it will have a strong foothold in several European countries in refining and marketing, including sales of products such as petrol through service stations, its market share is not likely to rise above 20&percent;.

The combined company, which will be called Total Fina, will have a market capitalisation of 35 billion ecu. Total says it expects earnings per share to grow by about 10&percent; within three years following the merger and predicts that the company's operating income will rise by about 318 million ecu a year over the same period.

“The two companies together will have about the best growth prospects for the sector,” said Poullet, adding that it was premature to assess how investors would view the deal. “Total paid a little too much, but in the longer term I am rather optimistic.”

Total's shareholders will meet next month to discuss the deal, which has already been approved by Petrofina's shareholders.

Oil companies around the globe are merging to trim costs as plunging oil prices - hovering close to 12-year lows - squeeze profit margins. The most significant development to date was the decision by Exxon Corp to buy Mobil Corp for about 75 billion ecu, creating the world's largest publicly traded oil company.

The consolidation in the sector is expected to continue. Analysts say both France's Elf Aquitaine SA and Italy's Eni are both on the lookout for partners. “I think there will be some more consolidation in the sector as companies try to cut costs,” said Mureille David, an analyst at Bonnewijn, Renwart & Cie in Brussels.