Suncor Energy Inc. is planning a takeover bid for Petro-Canada in a deal that would mark the final chapter of independence for the former state-owned oil company.
Industry sources in Calgary said that Petro-Canada was expected to make a major announcement Monday. The Wall Street Journal reported that Suncor, the No. 3 domestic oil company by stock market value, would offer about $18-billion in stock for its rival. Spokesmen for the two companies did not return calls.
The deal would create a new champion in the Canadian oil patch and unite two of the biggest players in the oil sands of Northern Alberta, provided that the two companies can stickhandle their way around federal legislation that was once thought to make Petro-Canada impervious to a takeover. Under the Petro-Canada Public Participation Act, no person or company can own or control more than 20 per cent of the company's voting shares and the head office must remain in Calgary.
Petro-Canada has been under increasing pressure from shareholders unhappy with its performance and with the ballooning costs at expansion projects such as Fort Hills, the centrepiece of the company's oil-sands strategy. The Ontario Teachers' Pension Plan recently disclosed that it had acquired more than 3 per cent of the company and was in talks with management on how to give life to its lacklustre share price.
Suncor is one of only two or three domestic energy companies large enough to swallow Petrocan, and is among the most experienced firms in Calgary at running technologically complex, multibillion-dollar oil sands projects.
The merger "makes a lot sense," said Greg Boland, chief executive officer of West Face Capital, a Toronto investment firm that is a major Petro-Canada shareholder. "It's just that nobody thought it would happen because of the Petro-Canada Act."
Suncor could potentially get around the law by appealing to the federal government for a change to the ownership rule, or by structuring the deal as a reverse takeover in which, legally speaking, Petro-Canada would be taking over Suncor, Mr. Boland said.
After watching several industry-leading Canadian companies, including Alcan Inc., Inco Ltd. and Falconbridge Ltd., get taken over by foreign interests, Ottawa might be receptive to a domestic merger that would create a new national champion in the oil patch. The federal government was openly supportive of the 2002 union between two large Calgary energy companies, PanCanadian Energy Corp. and Alberta Energy Co. Ltd., that created EnCana Corp. - although neither of those companies had the federal lineage that Petro-Canada does.
"You could create the story of the great Canadian company," said one Calgary investment banker who spoke on condition of anonymity.
Mr. Boland said: "There's no particular reason why Petro-Canada gas stations are any more nationalistic than Suncor gas stations."
Suncor and Petro-Canada have already come close to a deal once before. A few years ago, Suncor reached an advance stage of negotiations with Petro-Canada, according to a banker involved in those talks.
But the deal was scuttled because the federal government refused to provide assurances that it would move quickly to revoke or amend to act. Another source said there were other obstacles that scuttled that effort as well, though he was not specific.
Suncor, founded in 1953, is the world's second-largest oil sands producer. The company is also involved in natural gas production and oil refining.
Founded in 1969, Petro-Canada is involved in many aspects of the oil and gas trade, from exploration to production and distribution. It has operations around the world, from Canada to Tobago to Syria. It also operates a network of convenience stores and car washes in Canada.
With a report from The Wall Street Journal