TOTAL and DIRECT ENERGIE: A Merger and Acquisition Case Study Analysis

This case study provides an in-depth analysis of the merger and acquisition activities between TOTAL S.A., a major oil and gas company, and DIRECT ENERGIE, a French electricity retailer. It examines the background of both companies, focusing on TOTAL's corporate strategy, scope, and development activities, including its focus on low-carbon energies. The study details the type of acquisition, the reasons behind it, and the procedures involved. It highlights TOTAL's strategic moves to strengthen its market position, diversify its energy portfolio, and gain a competitive advantage in the French energy market, particularly against state-owned EDF. The analysis also covers TOTAL's corporate development policies, including shareholder value creation and investment strategies.

Running head: MERGER AND ACQUISITION
Merger and Acquisition
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Table of Contents
Introduction......................................................................................................................................2
Merger and Acquisition...................................................................................................................2
Background study into the chosen corporate entities......................................................................4
Acquiring Company.........................................................................................................................4
Corporate strategy............................................................................................................................5
Scope of the company......................................................................................................................6
Corporate development activities....................................................................................................7
Acquired Company..........................................................................................................................8
Type of acquisition..........................................................................................................................8
Reason for acquisition.....................................................................................................................8
Procedure of acquisition..................................................................................................................9
Conclusion.....................................................................................................................................11
References......................................................................................................................................12

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Introduction
In the business environment, many corporate entities went for acquisition and merger to
obtain the control of the market position. Among the last ten years, 2017 has seen the maximum
number of mergers and acquisition deals and these deals have been settled or signed in France
which had amounted approximately to $245.8 billion (€250 billion). The above figure that has
been included in the process of acquisition had been signed in the year of 2016 but had been
completed in the year 2017. The domestic and international factors had also sufficiently
contributed to the strengthening and attracting the French market. Therefore, this had boosted the
confidence of the investor (Greve and Man Zhang 2017). In not only France but global merger
and acquisition activity had contributed $ 3.6 trillion on an worldwide basis in the financial year
of 2017. In the last three consecutive year, the amount has crossed more than $3 trillion. In the
European continent the amount of merger and acquisition contributed $867.5 billion, which is,
more than 17% compared to previous year 2016. In France, the amount increased by a
percentage of 50% which is more than the previous year. However, the total merger and
acquisition amounted to $245.8 billion.
This particular study aims to analyse the merger and acquisition activities that have been
carried out by the corporate entities of TOTAL and DIRECT ENERGIE that have been situated
in France.
Merger and Acquisition
The merger and acquisition activities are generally carried out by the corporate entities in
order to strengthen the business position of the companies. This means that merger and
acquisition is a general term, which results in the consolidation of the corporate entities or the
assets via the different categories of financial transactions. In case of merger, the boards of

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director of the two companies that are going to be merged result in a mutual agreement contract
along with the seeking of the approval of the shareholders. Moreover, after the merger activities
have been carried out the company that has been acquired ceases to exist. The acquired company
becomes a part of the acquiring company (Tanriverdi and Uysal 2015). This can be further
explained with the help of an instance in which the Digital Computers have been absorbed by the
corporate entity of Compaq.
In case of acquisition, the company that is acquiring another company results in the
obtaining of the majority of the stake in regards to the firm that has been acquired. Moreover, the
company that is acquiring another company undergoes no change in regards to its name or legal
structure.
The primary difference between a merger and acquisition is that a merger takes place
when two separate entities results in the combination of the corporate entities that result in the
formation of a joint organization that has been resulted in the creation of equal partners. On the
other hand, acquisition refers to the purchasing of an entity by another corporate entity. It must
be noted here that the formation of a new company does not take place from the emergence of
the acquisition of the acquired company. Acquisitions are often known as takeovers that reflects
a negative process. This means that in case of a takeover, the acquiring company taking over the
acquired company carries out the process forcibly (Brueller et al. 2018). This is because the
target firm displays enough resistance to being bought by the acquired company. Therefore, it
can be understood that the process of merger requires two companies for the consolidation of an
entirely new entity. This new entity will have a new ownership and a structure of management.
Moreover, an acquisition takes place at the time when a single company results in the taking over
of the decisions that are operational in nature in regards to the acquired company. It must be

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stated here that the situation of friendly mergers do not take place often. This is due to the fact
that the combination of the forces will result in the transfer of authority. This transfer of
authority covers up the benefit of merger and acquisition.
Background study into the chosen corporate entities
A recent trend that has been observed refers to the fact that the French companies are
forcing the merger and acquisition activities in Europe. The situation that has been represented
indicates a sustainable and good health in the France LBO market. An oil based company in
France named TOTAL has taken steps to acquire the French electricity retailer DIRECT
ENERGIE. The companies merge with other companies to build a stronger control over the
market or the case might be such that, some companies who are weak have decided to work
jointly in the market with the stronger companies in order to survive in the market (Zhang et al.
2015). In some cases, the companies acquire other companies to get a hold of the diversified
business opportunities. This means that instead of creating a new company the companies tend to
acquire old or weak companies for the purpose of carrying on their business. On the other hand,
the companies that fall under the similar industry acquire companies which belong to that
industry, in order to make strong market contribution or to outscore it competitors. In the case of
TOTAL, which had acquired DIRECT ENERGIE gave it a competitive edge to the state owned
company named EDF situated in France.
Acquiring Company
In this analysis, the acquiring company is oil and exploration based company named
TOTAL S.A. It is one of the world’s top seven supermajor oil companies. The company has vast
business empire over the globe in regards to the oil chain. The company explores crude oil and
natural gas from the oil fields, engages in refining the crude oil, generates electricity, carries out

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transportation activities and marketing and international crude oil treading. The company is not
only doing business on natural resources of energies but it also focuses on the future
opportunities. They have established the solar energy and the other renewable energies. The
company’s headquarter is situated in Courbevoi, France. The company had been registered on 28
march 1924. The company had also spent a large time span in the oil and energy industry and
had resulted in the expansion of the business over the globe (Holburn and Vanden Bergh 2014).
The company also engages in the selling of petroleum and the by-products of petroleum like
lubrication of the oil, oil grease for the machines, and other chemical products. The company is
also focusing on low carbon energies. Low carbon energies are regarded as the sources of
energies, which emits low or no carbon dioxide in the environment. The company has good
command over the renewable energy sources like solar energy, biomass and others.
Corporate strategy
The TOTAL S.A remains focused and controlled in the volatile environment of oil
business. Where the oil price is falling significantly the company performing exceptionally well.
 The company will increase the OPEX savings from $3 to $4 billion by 2018.
 The company contributed in the growth with Capex at a sustainable level of $15 to
$17 billion after 2017.
 The company’s production capacity is growing by 5% every year.
The company is focusing on the activities for a medium term period.
 The company is trying to lower the breakdown portfolio for of oil. As the oil
exploration cost is very high and the cost of setting up of the refineries and
transportation as well as distribution has been so high that the breakeven position of

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the company has become high (Holburn and Vanden Bergh 2014). Therefore, the
company is focusing on the various ways to cut down the breakeven point on both
upstream and the downstream.
 The company is trying to acquire the large-scale market on overall oil and fuel gas
chains.
 The company is focusing on the low carbon energy business. In current
environment, the dependable source of energy is fossil fuel, which is hazardous for
the environment. In the use of fossil fuel, many toxic gases like carbon dioxide,
methane, and other gases have contaminated the global environment. The company
is very much aware of the fact that in the near future, the storage of the fossil fuels
will go empty and then the company will enjoy a better market as they are already
have been using the renewable resources of the energy (Bindabel et al. 2017).
Scope of the company
Total is one of the world’s leading profit-making organisation. The company has vast
number of products that they are offering in the market therefore the company is not dependent
on a particular product. Moreover, the company’s portfolio is much divfersified in nature. The
company is not cautious about the shortage of the energy resources rather the company has been
focusing more on the renewable resources of the future. The company has revealed in its annual
report that in the future, the renewable resources will have to be used and for that, the company’s
research and development team is trying to identify the various source of energy resources. The
company is creating a huge customer base for the future market of the company. The future
scope of the company is reliable as the company’s business policy is liberal in terms of adopting
the change.

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Corporate development activities
The company is focused on the management of the building up of the team, producing the
variability of the market products, as well as arranging strategic alliance and the identification of
the opportunities in regards to merger and acquisition. The company also results in the securing
of the corporate financing and the management of the intellectual property. The company wants
to grow the marketing service positions by capitalising the customer-focused culture. The
company is keen to grow the customer base and to make them reliable by providing good
products at a comfortable price. In the current position, the company has a huge customer base
but the company wants more customer for securing its business future (Boschma and Hartog
2014). The company has adopted some corporate development policies, which have been listed
down as follows:
 Creation of the value for the shareholders: the company is focusing on lowering the
cash flow in relation to the breakeven point. In the previous year, the corporate entity of
TOTAL has spent a total of $55 billion for the dividends, resource renewal and cash
flow operation of Capex. The company has continued growth in regards to the cash
flow. The company has also provided an accurate balance sheet as it has maintained a
strong and improved shareholder value by increasing the profitability.
 The company has an objective to obtain at least 10% return on investment. The
company policy is to discontinue scrip dividend by 2017, and the excessive cash flow
will be allotted by the buyback of the scrip share. This will boost up the confidence of
the shareholders of the company (Koenig et al. 2014). In addition to that, the company
president of exploration and production assured the improvement in the operational
efficiency and has also resulted in the cutting down of the cost in regards to the growth

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of the projects. The financial position of the corporate entity has been strengthened but
the company is cautious about the share valuations. The company is particularly
selecting the merger and acquisition process for the growth and expansion of the
company. The company has decided to acquire the 74% steak DIRECT ENERGIE. The
acquired company is a renowned company for electricity and gas distribution in France.
Acquired Company
Direct Energie is a France based electric generation and Distribution Company. The
company also offers natural gas and renewable energy. The company has been incorporated in
the year 2003 as an alternative of monopolistic ELECTRICITE DE FRANCE. The company has
the chances of potential growth and market improvement. By utilising the gas station, the
company produce 800 megawatts electricity for the purpose of consumption. The company is
performance is not sufficient to generate profits for its shareholders. In the year, the TOTAL S.A
claimed that they have interest to buy 74% of the stocks of the Direct Energie by purchasing
directly from the stockholders (Parola et al. 2015).
Type of acquisition
In the given case, the Total S.A has adopted a policy to acquire the Direct Energie by
acquiring the liquefied natural gas portfolio. The company accepted that they would buy 74.33
percent of the total share capital. The consideration was being settled by 1.4 billion euro ($1.73
billion). The company decided to pay 42 euros for each share purchase and 30 percent security
premium. After April 2017 closing market price and 24 percent on the last three months average
price (Han et al. 2016). The takeover is will increase the external growth of the company and
TOTAL will become the second largest company in the liquefied natural gas sector.
Reason for acquisition

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The company had been acquired because of the friendly group policy to expend the circle
of gas electricity chain values and to develop low carbon energy fuel. The company is also
concerned to outscore the state owned market leader EDF. This acquisition will help the
company to acquire 2.6 million new clients (Kansal and Chandani 2014). Total is expecting to
become the leading electricity power supplier in France and Belgium by 2022. By the acquiring
of the Energie the purchasing company will have more 3.8 million new customer base by the end
of December 2017, whereas the rival company holds the 85.5 percent contribution in the power
consumption.
Procedure of acquisition
In the acquisition of the DIRECT ENERGIE the company will buy 74.33 % of shares
form the direct shareholders of the acquired company by paying 1.4 billion euros.
After the acquisition, the TOTAL will issue the remaining share for subscription to the
investors for 42 euros per share at a premium, which was unanimously approved by the Direct
Energies’ board. Ex- dividends of .35 euro per share. Total will offer the securities of direct
Energies to trade on the Euronext Paris, which at the quoted price of 42 euro per share after the
permission of French Financial Market Authority (Autorité des marchés financiers) mandatory
tender. The above quoted price represents 30% premium over the Direct Energie’s closing share
price on April 17, 2018, a 24% premium above the volume weighted average share price over the
last three months, and 13% above the volume weighted average of last six months share price.
The value will be equal to 12.5 times of the EBITDA of the earnings of Direct energies for 2018.
In the Direct Energie’s Board of Directors meeting on April 17, they have concluded that the
independent expert considers the quoted price and the terms and tender offer to be fair. The
board of has suggested the shareholders to tender their share into the offer that will be proposed

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(Popli and Sinha 2014). The Direct Energies board appointed independent expert to make the
acquisition process is co-responding with the all the relevant litigation and the requirements and
regulations. By this acquisition, the TOTAL will expand the existing power generation market.
The group of subsidiaries of the total will be complementary with the Direct Energie power
generation activities. The TOTAL will acquire the 1.35 gig watts - 800 megawatts of gas-fired
power generation capacity and will take over the 550 megawatts power generation from the
renewable sources. This will be ad joint with the company’s current capacity of 900 megawatt.
The applicable laws and employee representative bodies will guide the transaction process.
Further Direct Energies books will be acquire by the TOALT after the prior permission of the
European commission. Which is a competent authority to control and approve the procedure of
merger and acquisition.
After submitting the Direct energies controlling blocks to the French Financial Markets
Authority (Autorité des marchés financiers) the proposed tender could be offered in accordance
with the applicable laws and regulations. It is expected that the block of shares will be completed
by the third quarter and after blocking the old share, the new tender could be offered. The shares,
which is not acted upon the tender, should not exceed 5% of the total issued share capital and
voting rights of the Direct Energie. The shareholder who are not willing to purchase the quoted
share will be remitted by paying in available cash of the company.
Status of acquisition
The company has just started the acquisition procedure. They have obtain the permission
form competent authorities. They have fulfilled all the legal criteria. The acquisition process is in
the primary stage. The activity of share surrender is expected to be completed by thr third quarter

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of 2018. After the share surrender, the company will remit the liabilities of the shareholder who
are not willing to continue with the company by existing cash reserves of the company.
Conclusion
Form the above analysis, it is derived that the TOTAL S.A has complied with all the
required provisions and the acquisition is under process. The acquired company was engaged in
the gas energy producer and distributer. The acquired company the DIRECT ENERGIE being a
major competitor of state own EDF the purchaser company acquired the acquired company to
hold the majority of the market in France and Belgium. Though the acquired company hold, a
good market position the company cannot gain the shareholder confidence, as the company is not
generating profits. The TOTAL being in the oil exploration and renewable sector business it had
emphasis a large portion of the market. The aim of the company is to become a global leader in
energy production business. The acquisition of Direct Energie is a step to concur the goal. The
company is focusing on the external growth.