IN THE NEWS / Bryan and Noval, Together At Last
Thursday, October 1, 1998
MATHEW INGRAM - Globe & Mail
So, the rumours have come true after all -- oil patch bad boys Greg Noval and J.P. Bryan have joined forces. After some extended wooing, gentleman gunslinger and former Gulf Canada honcho J.P. Bryan has hitched his wagon to big-game hunter Greg Noval's company, Canadian 88 Energy. Mr. Bryan says his vision is "mainly dedicated to seeing what we can buy."
This will bring cheer to corporate finance professionals, since Mr. Bryan showed an enthusiasm for various kinds of financing -- such as the income trust, which he helped popularize. No doubt underwriters are already sharpening their pencils, hoping to pitch Mr. Bryan on all kinds of debt and equity packages he can use to fuel a Canadian 88 buying spree.
Mr. Bryan will likely wince at that description of his plans for Canadian 88, of which he is now the executive chairman. But by their own estimates, he and Mr. Noval want to double or even triple the size of the company, which currently has a market value of about $550-million. You can't produce that kind of growth without making some big acquisitions.
And let's face it, big acquisitions are what got J.P. into trouble in his previous job. After building up Gulf Canada through more than $2-billion in purchases, he and the board parted company on strategy, and then finally Mr. Bryan parted with the company, period. Now he says he wants to bring his expertise in "creative transactions" to Canadian 88.
Mr. Noval's company has two things going for it that make it perfect for these purposes. First, it has little debt on its balance sheet -- so it's ready to be "leveraged up" as corporate finance types like to say. Second, it is focused on natural gas, and in the current market gas players are the chosen ones (oil companies are the outcasts).
Leverage is clearly a bit of a sore point with Mr. Bryan. At Monday's press conference, the former Gulf Canada CEO said he's a little peeved that he has a reputation for being overly enamoured of debt. "I don't carry it around with me like a prayer rug," he said in his Texas drawl, flashing one of his Gary Cooper-style grins. But like it or not, a fondness for debt is one of the things the market associates with Mr. Bryan.
That's not to say that loading Gulf Canada's balance sheet up is the only thing Mr. Bryan did during his tenure. As he pointed out, he took a company that was "on an iron lung machine" in 1994 and built it into a $4-billion producer with global assets. He also managed to ruffle quite a few feathers in the clubby Calgary oil patch with his tactics.
It's also true that Mr. Bryan increased Gulf Canada's equity, which had the effect of improving the company's financial ratios -- even as he added about $2-billion in debt to finance the purchase of Clyde Resources, Stampeder Explorations and others. Of course, Mr. Bryan did all this when the price of oil was soaring and the market couldn't get enough of oil stocks.
Mr. Bryan also pointed out that he structured Gulf Canada's debt so that most of the payments were far in the future, so the company wouldn't find itself pressed if commodity prices weakened -- as they have. "After 30 years in the corporate finance business, you'd think I'd be aware of the effect low prices would have" on a company's financial health, he said.
All these things are true. But what's also true is that many players in the market -- including ordinary investors and institutions -- have a much lower comfort level when it comes to debt than the charismatic Mr. Bryan. He may not have flinched when Gulf Canada's debt rose to 4.5 times cash flow, but there were plenty who did. Perhaps that's why shares of Canadian 88 fell on the news of his arrival, and continued to slide Tuesday and Wednesday.
In any case, when it comes to a desire for big acquisitions, Mr. Bryan picked the right partner in Mr. Noval, who has tried and failed several times to build his company through hostile takeovers. The first came in 1994, when he made an offer for Texaco Canada -- although he said later that he was glad he failed, since the target was 10 times his size.
Then Mr. Noval made a run at Amerada Hess in 1996, but his $540-million bid failed to win the day. Finally, he made a $650-million bid last year for Morrison Petroleums -- a move that also failed, and led to a trading ban for Mr. Noval imposed by the Alberta Securities Commission for transactions involving Morrison stock.
Mr. Noval is no doubt hoping the added firepower of J.P. Bryan will help him bag a big one or two -- and there are some attractive opportunities, including gas companies such as Penn West and Rio Alto (both controlled by Calgary financier Murray Edwards). There's also the soon-to-be-public Canadian Hunter, a spinoff from Noranda.
The market's appetite for debt and equity, however, is almost non-existent at the moment, and that goes double for income trusts. Can Mr. Bryan work his financing magic in that kind of environment? For the answer, don't miss future instalments of the J.P. Bryan and Greg Noval show. |
