Suncor to Buy Petro-Canada in C$19.3 Billion Takeover

Consolidation in global energy sector now gathers momentum. Suncor Energy Inc., the world’s second-largest oil-sands producer, agreed to buy Petro-Canada for C$19.3 billion ($15.6 billion) in a record takeover that will create the biggest Canadian energy company. Owners of Petro-Canada will get 1.28 shares of the combined company for each of their shares, the Calgary-based oil producers said today in a statement. The transaction values Petro-Canada at C$39.55 a share, 33 percent higher than its March 20 closing price.

The deal is the biggest in history for a Canadian oil company and is the industry’s largest worldwide since January 2007, according to Bloomberg data. It will yield expense savings and help Suncor shoulder high-cost oil-sands projects in northern Alberta after crude prices tumbled more than $100 a barrel from last year’s all-time high.

"It’s a good opportunity for Suncor to snap up some good assets at fairly depressed prices," said Greg Smith, managing director at investment adviser Fat Prophets U.K. Ltd. in London.
"Oil sands are the legitimate solution to the long-term energy problem, but it’s a lot more costly to get the oil out of the ground."

Petro-Canada produced about 409,000 barrels of oil equivalent a day in the fourth quarter, 46 percent more than Suncor’s total, from its operations in Canada, the U.S., the North Sea and Africa.

The Ontario Teachers’ Pension Plan increased its stake in Petro-Canada to 3.3 percent in the fourth quarter and said it would push for ways to boost the share price after the stock lost half its value last year. The stock underperformed the Standard & Poor’s/Toronto Stock Exchange Composite Index five years in a row, a period when oil prices almost tripled.
"If you look at how badly Petro-Canada has underperformed over the last five years, you’d say it’s a fair deal," said Gavin Graham, director of investments at Bank of Montreal Asset Management in Toronto. "Suncor has to demonstrate that it can actually run those assets better. Given their track record, they are very likely to do so." Suncor, which lost 56 percent of its market value last year, had jumped 30 percent this year before today, the most among Canadian oil companies valued at more than C$1 billion.