European Oil Companies Eye Merger

Total SA, the French oil and gas giant, said Tuesday that it has purchased a 41 percent stake in Belgium's PetroFina, and said it will bid for the rest of the company for $12.7 billion in stock.

The merged company would create the sixth largest oil company in the world and the third largest in Europe. Total will issue new shares and exchange nine Total shares for every two Petrofina shares.

The offer values Petrofina shares at $557 million. That represents a 36 percent premium to Friday's closing price and a 50 percent premium from a week ago.

Investors showed their dismay at the news by sending Total's shares down 10 percent, triggering a trading halt in the shares on the Paris stock exchange. Analysts suggested that, given the difficult market conditions now facing oil companies, the premium is an excessive price to pay.

In New York trading, Total ADRs (TOT) fell 6 15/16 to 54 3/16 while PetroFina's (FIN) added 7 15/16 to 48 5/8.

Total said the merged company will be called Total Fina and will be listed on the stock exchanges of Paris, Brussels, London, and New York "after consultation with appropriate parties." The board of directors will also be expanded to include four new directors.

The combined companies would generate operating income of about $553 million within three years. The deal would be non-dilutive from 2000, which would be the first full year of the new group's operations. Total said it expects earnings per share to be increased by some 10 percent within three years.

In a statement, the French company said: "the combination of Total and PetroFina will allow the new entity to capture substantial productivity gains, particularly in the North Sea, and to expand its positions in the deep offshore (United States, Angola)."

Written By Suzanne Miller, London bureau chief for CBS MarketWatch