The FINANCIAL — Suncor Energy Inc. ("Suncor") (TSX:SU) (NYSE:SU) and Petro-Canada ("Petro-Canada") (TSX:PCA) (NYSE:PCZ) on March 23 announced that they have agreed to merge the two companies.
"Upon completion of the transaction, the parties have agreed the combined entity will operate corporately and trade under the Suncor name, while maintaining the strong brand presence and customer loyalty of Petro-Canada in refined products," Petro-Canada announces.
"This merger creates a made-in-Canada energy leader with the assets, cost structure and financial strength to compete globally," said Rick George, who is president and chief executive officer of Suncor and who will assume the same role with the merged entity. "The combined portfolio boasts the largest oil sands resource position, a strong Canadian downstream brand, solid conventional exploration and production assets, and low-cost production from Canada's east coast and internationally."
Under the terms of the Arrangement Agreement entered into between Suncor and Petro-Canada, the proposed merger will be effected by way of a Plan of Arrangement completed under the Canada Business Corporations Act. It will feature a common share exchange through which Petro-Canada common shareholders will effectively receive 1.28 common shares of the merged company for each common share of Petro-Canada they own and each Suncor common shareholder will receive one common share of the merged company for each common share of Suncor they own. The exchange ratio represents an approximate 25% premium for the Petro-Canada shares to the 30-day weighted-average trading price of such shares. On completion of the proposed transaction, Suncor's existing shareholders will own approximately 60 per cent and Petro-Canada shareholders will own approximately 40 per cent of the merged company.
The merged company will have the following key characteristics:
a resource base with approximately 7.5 billion barrels of oil equivalent (boe) of proved (developed and undeveloped) and probable reserves, on top of an estimated contingent resource base of approximately 19 billion boe (see 2008 Reserves and Remaining Recoverable Resources in this news release).
strong cash flow from current crude oil and natural gas production of approximately 680,000 boe per day (boe/d).
a strong balance sheet, with a pro forma debt to capitalization of 29.6 per cent and a debt-to-cash flow ratio of 1.2.
an experienced management team, complementary cultures and leading environmental and social responsibility practices.
a high quality asset portfolio including:
a suite of oil sands growth options for both mined and in-situ resource recovery, as well as value-added upgrading.
a position in every major oil development project on Canada's East Coast.
low-cost international crude oil and natural gas production from the North Sea, North Africa and Latin America.
refining capacity of 433,000 barrels per day (b/d) and a strong Canadian retail brand.
a solid platform for further development of renewable energy projects.
"The merger will be good for shareholders of both companies with reduced capital requirements, operating efficiencies and complementary integration opportunities between upstream and downstream assets," said Ron Brenneman, who is currently president and chief executive officer of Petro-Canada and who will assume the role of Executive Vice Chairman in the merged company. "The increased scale provides more stability in volatile markets, plus the financial and organizational capability to successfully take on large-scale projects in the future."
"More than just the strategic fit, I also believe there's a lot of common ground in our corporate vision" said George. "Both Petro-Canada and Suncor have a history of innovation and pushing the frontiers of oil and gas development in Canada. And just as importantly, both companies have taken a leadership position in striving to develop not just resources, but also communities, the Canadian economy and our quality of life. We've both put a strong focus on people and our shared environment and together, I expect that focus to be even stronger as we move forward."
The merging companies estimate achieving annual operating expenditure reductions of $300 million. These savings are expected to come from efficiencies in overlapping operations, streamlining business practices, and improved logistics. The companies also expect to achieve annual capital efficiencies of approximately $1 billion through elimination of redundant spending and targeting capital budgets to high-return, near term projects.
The merged company's Board of Directors is expected to comprise 12 Directors, including eight members from Suncor's current board and four members from Petro-Canada's current board. John Ferguson, Suncor Energy Chairman, will serve as Chairman of the Board of Directors of the merged company.
Completion of the proposed merger is conditional on approval of Suncor and Petro-Canada shareholders, compliance with the Competition Act, and satisfaction of other customary approvals including regulatory, stock exchange, and Court of Queen's Bench of Alberta approvals. The required shareholder approval will be two thirds of the votes cast by holders of Suncor common shares and two thirds of the votes cast by holders of Petro-Canada common shares at meetings of Suncor and Petro-Canada, respectively, held to consider the proposed merger. Suncor and Petro-Canada will defer their annual and general meetings so that combined annual and special shareholder meetings for each of Suncor and Petro-Canada can be held in late May or early June to consider annual shareholder business and the proposed merger. Suncor and Petro-Canada anticipate that the proposed merger will be completed in the third quarter of 2009.
It is expected that a joint information circular will be sent to the shareholders of each company in April. The Arrangement has been structured to allow shareholders of Petro-Canada and Suncor to receive shares of the merged company on a tax-deferred basis for Canadian and United States income tax purposes. The Arrangement Agreement provides that each party is subject to non-solicitation provisions and for the payment of a fee of $300 million to either party in the event that the transaction is not completed for certain reasons other than, among other things, shareholder and regulatory approval.
The merged company will continue to be governed by the provisions of the Petro-Canada Public Participation Act. Key provisions provide that the head office will be in Calgary, Alberta; no single shareholder or group acting in concert can hold more than 20% of the outstanding shares of the merged company; and the public can communicate with and obtain services from head office in either of Canada's official languages.
Both Boards of Directors have determined that the proposed merger is in the best interest of their respective companies based in part upon fairness opinions received from their financial advisors. CIBC World Markets and Morgan Stanley are acting as financial advisors to Suncor for the purposes of this transaction. Petro-Canada retained RBC Capital Markets and Deutsche Bank as its financial advisors. Blake, Cassels and Graydon LLP served as legal counsel to Suncor. Petro-Canada retained Macleod Dixon LLP as its legal counsel, and Torys LLP in connection with the Petro-Canada Public Participation Act and United States legal issues.
Subject to the approval of the stock exchanges, the merged company's shares will trade on both the Toronto and New York stock exchanges under the symbol (SU).
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