March 23, 2009 at 6:21 pm #3161
<Here are couple versions of Canada Mega Merger – CER>
Suncor To Buy Petro-Canada for Nearly $15 Billion
Topics:Mergers & Acquisitions
Sectors:Oil and Gas
Companies:Petro-Canada | Suncor Energy Inc.
By: Reuters | 23 Mar 2009 | 04:54 AM ET
Suncor Energy, Canada’ No.2 oil company, agreed to buy rival Petro-Canada for about C$18.43 billion ($14.86 billion) to expand its oil sand reserves and create the country’s biggest energy group.
The deal comes after a period of missed earnings targets and project delay at Petro-Canada, and is expected to be completed in the third quarter of 2009.
The all-share offer represents a premium of about 28 percent to the C$29.65 closing price of Petro-Canada shares on Friday as assuming 484.4 million Petro-Canada shares outstanding as of Dec. 31, 2008.
On completion of the proposed deal, Suncor’s [SU 25.29 -1.69 (-6.26%) ] existing shareholders will own about 60 percent and Petro-Canada shareholders will own about 40 percent of the merged company, the companies said.
Petro-Canada [PCZ 24.01 -1.00 (-4%) ] shareholders will receive 1.28 common shares of the merged company for each Petro-Canada share, while Suncor shareholders will get one common share of the merged company for each Suncor share.
The companies expect to achieve annual operating expenditure reductions of $300 million.
They also expect to achieve annual capital efficiencies of about $1 billion through elimination of redundant spending and targeting capital budgets to high-return, near term projects.
The deal would combine Petro-Canada’s extensive retail gasoline and refining business and its international operations with Suncor’s extensive operations in the oil sands, where it is the No. 2 producer behind Syncrude Canada Ltd.
Petro-Canada delayed its Fort Hills oil sands project last year because of rising costs.
Petro-Canada has also faced pressure to boost the value of its shares, which have lagged rivals because the company’s management has failed to boost production and the firm’s repeated failures to meet earnings targets.
Its shares have dropped 31 percent over the past 12 months while Suncor stock is down 35 percent.
The news confirms a report in the Wall Street Journal which said the two companies were in advanced talks.
The Oil Mega-Merger You Almost Missed
By Toby Shute
March 23, 2009
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With all of the talk circling around the Treasury and toxic assets today, a historic merger barely made the headlines. But this is pretty huge.
Suncor Energy (NYSE: SU) and Petro-Canada (NYSE: PCZ), each a formidable integrated energy company in its own right, are joining in an all-share deal to form a Canadian champion. While this pairing isn’t quite on par with the deals that created U.S. supermajors like ConocoPhillips (NYSE: COP) earlier this decade, it’s still a major event in the energy world.
We’ve seen Suncor struggle along with the rest of the oil sands operators as it faces prices that are hostile even to conventional oil projects. I think the firm made its merger motivations most clear during the conference call, when CEO Rick George pointed to the ability of ExxonMobil (NYSE: XOM) and Royal Dutch Shell (NYSE: RDS-A) (NYSE: RDS-B) to invest “through the bottom part of the cycle.” Basically, Suncor has been caught without the robust down-cycle cash flow profile of its larger, integrated peers, and it has been forced to drastically cut capital spending.
Petro-Canada, which is quite highly levered to lower-cost oil production, offers some much needed balance to Suncor’s oil sands-heavy production profile. The combined firm will actually look quite a bit more like Canadian Natural Resources (NYSE: CNQ) between the conventional/heavy balance and the increased international profile. For Suncor investors, I think the dramatically improved cost profile ought to outweigh concerns about the loss of an oil sands pure play. Oil super-bulls expecting a quick return to triple-digit prices may disagree.
As for the deal terms, Suncor is paying a fairly fat premium for Petro-Canada, but that’s coming off of a significantly depressed base. Based on proved and probable reserves — which ignores a great deal of oil sands potential — Suncor’s not necessarily getting more than it’s giving up (remember that Suncor is paying with its own shares). The deal does look attractive, however, in terms of flowing barrels, which Suncor is picking up at a fraction of the cost of its currently halted Voyageur expansion, and for less than Penn West Energy (NYSE: PWE) paid or Talisman Energy received in recent deals.
All things considered, I think shareholders on both sides should feel good about this deal.
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