The Quest - By Daniel Yergin Page 0,46

Trotskyite and one of the founders of the modern French Socialist Party, he was not at all familiar with the oil business and its circumstances. It was made clear to Desmarest that he would personally have to make the case to the prime minister about “the importance to France” of a merger.

Time was very short, as Total was on the very eve of launching its takeover bid. But the prime minister was in Moscow.

On Friday evening, Desmarest flew to Moscow and went directly to the National Hotel, opposite the Kremlin, for a middle-of-the-night meeting with the prime minister and Finance Minister Strauss-Kahn. Desmarest set about explaining the urgency, given what was happening with BP and Amoco, and Exxon and Mobil, and with the national oil companies. “Isn’t this just a matter of the egos of the CEOs?” asked the prime minister. Desmarest was prepared to answer the question. But under the circumstances, he judged it wiser to leave that particular answer to Strauss-Kahn. The finance minister, a former economics professor, gave the prime minister a short and persuasive lecture on the economic reality and global competitive dynamics that made a deal essential for French national interest. The French prime minister absorbed the lesson. He gave the requisite green light.

By Saturday morning, Desmarest was back in Paris, where the team was putting the last touches on the offer. On Monday, Total launched its takeover bid for Elf. The Elf CEO, Philippe Jaffré, was shocked. Elf mounted a counteroffer ; it would take over Total.

In the war for shareholder support, the battle was on. Despite the bitter accusations back and forth, the two sides were privately exchanging plans, since it was foreordained that there would be a merger, and a single French company would emerge out of the struggle. With that in mind, Desmarest and Jaffré worked out a private understanding: neither would personally attack the other publicly, since one of them would actually have to run the combined company.

In September 1999 the deal was done. TotalFina took over Elf, and Desmarest became CEO of the combined company. After a short while, TotalFinaElf would come to be known simply as Total, one of the world’s supermajors.14

“WE HAD TO CONSOLIDATE”: CHEVRON AND TEXACO

For Chevron, the former Standard of California and the nation’s third-largest oil company, it was the Exxon-Mobil merger that had really galvanized action. “ What surprised me of all of the deals was Mobil’s selling themselves to Exxon,” said David O’Reilly, who would later become CEO of Chevron. “I thought of Mobil as a sizable company, with a good portfolio, and good growth prospects.”

For Chevron, the obvious partner was Texaco, with which it shared the Caltex joint ventures—oil production in Indonesia, refining and marketing throughout Asia, now the fastest-growing market in the world. These joint ventures were five decades old and considered among the most successful such operations involving any kind of companies in the world.

A merger made the same sense to Texaco. The larger companies, the supermajors, would indeed have a higher stock market valuation than the traditional majors. In the spring of 1999, Texaco reached out to Chevron.

The companies secretly dispatched teams to rendezvous in Scottsdale, Arizona. After several days, they concluded that the fit would be excellent. But this would be no merger of equals. Texaco had gone through difficult times. It had lost a $3 billion lawsuit to an independent oil company, Pennzoil, and then, to fend off a hostile takeover from the financier Carl Icahn, it had taken on billions more in debt. As a result, it had to sell its Canadian subsidiary and slash its exploration budget, which would have painful consequences. “It’s a pretty simple rule,” said William Wicker, then CFO of Texaco. “If you cut your exploration budget in Year Zero, you’re not growing in Year Seven and Eight.” Texaco had just started to invest again, but the impact would be years away. Texaco was still a very big company, but Chevron was nearly twice as large and would be the acquirer.

While there was a good fit between the companies, the same could hardly be said of the two CEOs, Chevron’s Kenneth Derr and Texaco’s Peter Bijur. At best, the relationship between them was frosty. Moreover, the two sides could not agree on price, and the discussions broke down. Texaco, Bijur said, was developing a strategy that would get back on a solid growth course.

In the autumn of 1999, Derr retired. The new CEO, David O’Reilly, had been hired by Chevron many years