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Canadian mergers, acquisitions hit C$151 billion over past decade Analysts at odds over what to expect for 2002; some say more deals inevitable in “go-big-or-go-home “ era, others say there aren’t enough inviting targets Gary Park PNA Canadian Correspondent
The finally tally on mergers and acquisitions in the Canadian oil patch last year dramatically capture how fast the industry is being remade.
Sayer Securities Ltd., a Calgary-based energy consultant, placed the value of deal-making last year at C$39 billion — C$18.1 billion ahead of 2000 and C$13.9 billion above the previous high set in 1998.
That raised the total since 1990 to C$151.1 billion (excluding assumed debt), although it wasn’t until 1996 that M&As topped the C$10 billion level.
More than anything the frenzied pace of activity proves what analysts and investment managers have been repeating for years — the lack of interest by institutional investors in a broad range of companies has been driving the deal-making.
The pace shows no signs of tapering off. In only the first month of 2002, PanCanadian Energy Corp. and Alberta Energy Co. Ltd. have cemented a C$27 billion merger and Petro-Canada has locked up a C$3.2 billion purchase of the upstream oil and gas operations of Germany’s Veba Oil & Gas GmbH, to boost its production and reserves by more than 70 percent.
Once those two transactions are finalized, Canadian-based companies will dominate their industry.
EnCana will easily be the largest company in Canada in reserves, production and exploration lands; Petro-Canada will become the No. 1 integrated company, hurdling over Imperial Oil Ltd., 69.6 percent owned by ExxonMobil Corp., and Shell Canada Ltd., controlled 78 percent by the Royal Dutch/Shell Group. More M&As predicted More M&As predicted Peter Linder, an analyst with Research Capital Corp., is a firm believer that 2002 will see even more M&As, with Canadian-based firms playing an even bigger role.
He puts Rio Alto Exploration Ltd. high on his takeover list and would not be surprised to see mergers of Talisman Energy Inc. and Nexen Inc., both with extensive overseas interests, and Canadian Natural Resources Ltd. and Penn West Petroleum Inc.
However, FirstEnergy in a recent report suggests that M&A activity will taper off in 2002 as the number of attractive targets diminishes, despite speculation that Royal Dutch/Shell and French giant TotalFinaElf SA are reported to be prowling for Canadian opportunities.
Stephen Calderwood, vice president of Salman Partners, said the pressure is on larger Canadian companies to reach a point where they can “compete with the largest oil companies in the world. Every company is up for sale in Canada. It’s a sellers’ market.”
The robust state of the Canadian industry was seen last year when total financings climbed 103 percent to C$7.9 billion from C$3.9 billion in 2000, according to Sayer Securities.
The biggest jump was in the value of debt financings, up 170 percent to C$5.4 billion from C$2 billion and far ahead of the previous record of C$3.7 billion in 1998, as the nosedive in interest rates encouraged more companies to use long-term debt.
But equity financings continued a downward trend, slipping to C$1.05 billion from C$1.08 billion, indicating a reluctance to put “risk” money in an industry given the level of oil and gas prices and the pace of mergers and acquisitions.
Sayer said two factors were at play: Larger E&P companies had sufficient cash flow to finance their activities without going to the market, while U.S. buyers of Canadian companies were more inclined to raise their funds on American equity markets.
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