Tuesday, March 24, 2009

Petro Canada, Suncor and OTPP - What's going on?

Only yesterday, Suncor announced a merger with Petro Canada through a stock swap. This is an interesting M&A deal as Suncor will not be using any cash, but rather doing a stock swap that results in Suncor shareholders owning 60% of the combined company. In this environment, it's probably the most prudent financial mechanism to perform M&A.

In my solar car days working with Sunoco, they were pretty adamant about being a Canadian company, and the Toronto Star in it's article reminded readers of Pierre Trudeau's dream of a national oil champion 34 years ago and hoped for the birth of a new champion (rather than the loss of one).

Petro Canada's management has been under a lot of heat for under performing, with particular scorn directed at their international assets which appear to have very disproportionate Sharpe ratios.

While this temporarily deals with OTPP intervening in Petro Canada's management, papers have reported that the new company will operate with the Suncor name and Petro Canada CEO Ron Brenneman will assume the role of Executive Vice Chairman (meaning Suncor is clearly taking the reins). I would expect that a merger of these titan's (creating the fifth largest energy producer in North America and the largest in Canada) would probably result in downsizing, probably even at the highest management levels and through out Canada (also mentioned in the article).

Similar to the recent RIM / Certicom / Verisign M&A deal (with RIM stirring the pot for Certicom shareholders), OTPP as a holder of Petro Can should at least be credited with stirring the pot to invoke positive interest in it's holdings. The publicity of a "corrective"action by a strong activist shareholder doesn't hurt in getting public attention.

No comments: