The images of Petro-Canada PCA-T CEO Ron Brenneman and Suncor SU-T CEO Rick George announcing their proposed merger took me back to January, 2002, when PanCanadian chairman David O'Brien and I announced the proposed merger of his company with Alberta Energy to form EnCana Corp.
That deal would create North America's largest natural gas producer and bring together two of the premiere in situ (produced by drilling rather than digging) oil sands holdings; along with conventional oil holdings in the Gulf of Mexico, North Sea, South America and the Middle East. It would also create the largest market capitalization corporation ever headquartered west of Toronto, and one of the top three in the country.
Dick Haskayne, a Canadian business icon who served on Alberta Energy's board and then EnCana's, recalls the event in his memoirs, entitled Northern Tigers: "While we didn't call it a Northern Tiger then, we knew it was a flagship corporation ... reflected in the headlines such as 'world's largest independent exploration and production company.' " Shortly after our announcement, we embarked on an intensive investor journey to Canadian and U.S. financial centres. Selling a "no premium merger of equals" deal to shareholders accustomed to reaping big cash payouts from the succession of recent foreign takeovers would require a very strong cost synergy and growth story, along with every bit of investor credibility David and I had built over our CEO careers.
The first day of our "road show" didn't take us to Toronto or New York, but rather to Ottawa.
The minimum time needed to achieve shareholder approval of our deal was eight weeks. Our companies were very attractive targets and the "no premium" deal left us vulnerable to instant gratification cash offers from growth-challenged international majors.
On the other hand, then-prime minister Jean Chrétien was being accused of fiddling while Canadian-headquartered companies were disappearing. This presented a common cause, although there was no law to protect us during this very vulnerable period. The most we could hope for were public comments of political support for the creation of our Canadian flagship company.
The prime minister was out when we arrived to see his chief of staff, Eddie Goldenberg, but it didn't take long for him to see the political downside of losing two important head offices, and the upside of creating a bigger, stronger one.
Mr. Goldenberg's biggest concern, and ours as well, was how to show support without appearing to prejudge the regulatory examination process. I reminded him that the government often makes policy statements in favour of actions or projects that require approval by one or more federal agencies, for example, the government's long-stated support for a northern gas pipeline.
A phone call to the PM resulted in the following statement by natural resources minister Herb Dhaliwal during parliamentary Question Period: "This is an important development. ... The proposed merger would create the largest oil and gas company in Canada, thereby improving its competitive position globally. I welcome EnCana's leadership role in world energy markets."
Anyone who thinks that federal ministers enjoy short hours hasn't spent much time in Ottawa. We found finance minister Paul Martin in his office around 9 p.m. discussing some briefs with his cabinet colleague Ralph Goodale over cold pizza.
Like Mr. Chrétien, Mr. Martin was also feeling bruised by accusations that his policies had driven the loonie down to a point where Canadian companies were so cheap to foreigners that they were picked off like ripe plums. He immediately saw the significance of our endeavour.
Mr. Goodale, one of the very few Prairies-based ministers, was equally ebullient.
Mr. Martin was about to leave for the World Economic Forum, which was being held in New York that year, instead of Davos, as a show of support for the terrorist-stricken city.
After delivering a speech, Mr. Martin held a media conference, in which he said: "Subject to regulatory authority, this [EnCana]merger is a great opportunity for Canada."
David O'Brien and I instructed our investment bankers to ensure those ministerial statements found their way to the desks of the CEOs of the world's large oil and gas companies.
Over the past week, I've been asked if I wished we had been afforded the protection of a law like the Petro-Canada Act, requiring a Canadian head office and preventing any single shareholder from holding more than 20 per cent.
Without any enforcement framework, the ministerial statements, which may have helped keep interlopers at bay during EnCana's formative period, were nothing more than warnings to foreigners that breaking up the deal would be politically unpopular.
Weighing the risks at the time, if either PanCanadian or Alberta Energy had been subject to such a law, I would have welcomed its protection. I admit that my strong personal beliefs in the economic importance of Canadian-headquartered companies are part of the reason. In fact, I left a foreign-controlled firm to join startup Alberta Energy Co. because I wanted to work where the decisions were made, and because I believe that Canadians can compete with the world's best.
But I also strongly believed that our merger was the best option for shareholders. The proof of that came as investors who retained their converted shares realized much more value than any conceivable cash takeover premium an interloper might have offered.
It is my view that shareholders who support the creation of the new Suncor are also likely to enjoy strong future gains.
Many investors will say the Petro-Canada Act, or a similar law, entrenches management and removes an ongoing takeover premium. These points have hypothetical merit, but the reality is that very few passive investors want to have so many eggs in one basket as 20 per cent of a company with a market capitalization in the tens of billions.
The real policy dilemma comes in how to administer the newly amended Investment Canada Act, empowering the government to reject a foreign takeover on "national security" grounds. Industry Canada has signalled this will include economic and energy security.
While joining Rick George in calling for the repeal of the Petro-Canada Act, Ron Brenneman told the Globe: "We're hopeful that ... because of the [merged company's]size and profile ... it falls under the provisions of the [strengthened]Investment Canada Act ... to prevent unwanted takeovers."
If that is true for Suncor, then I guess I can breathe a little easier about the continuing Canadian domicile of the company I spent three decades working to build.
But unless the government actually says which companies are excluded from "unwanted takeovers," how is a prospective foreign buyer to know? And if they haven't said which are protected, will the government step in and kill a deal after a hostile offer is made, angering shareholders who have just seen the value of their holdings skyrocket?
If I were Rick George, I would need some clear answers to these questions before asking for repeal of the Petro-Canada Act.
Gywn Morgan is the retired founding CEO of EnCana Corp.
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