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Gold/Mining/Energy : Canadian Oil & Gas Companies -- Ignore unavailable to you. Want to Upgrade?

To: RIK who wrote (8628)	1/26/2002 1:17:34 PM
From: Richard Saunders	Read Replies (1) \| Respond to of 24940

more re: AEC-PCE & sniped from theglobeandmail.com Energy giants won't get to altar together By ANDREW WILLIS Saturday, January 26, 2002 – Print Edition, Page B4 As a patriotic Canadian, I would salute a marriage of PanCanadian Energy and Alberta Energy Co. that creates a world-beating domestic oil and gas play. As a cold-hearted realist, I'm convinced these two crazy kids don't stand a chance of getting to the altar together. Yesterday, before PanCanadian and AEC had even inked a merger agreement, the two companies' stocks were trading at levels that pointed to new suitors taking a run at the bride. Either could wear the white dress, but PanCanadian was judged the more desirable prize. Speculation wasn't about terms of a possible merger; the buzz was over what foreign energy giant would swoop in to break up the nuptials by grabbing one company or the other. If a deal is reached, AEC and PanCanadian will make all kinds of feel-good nationalist noise about the synergies they enjoy, and the wonderful future spread before them. While it may be true, it's cash that will make or, more likely, break this deal. And this pair aren't offering any. AEC and PanCanadian have already said they contemplate a merger of equals, an exchange of their paper with terms to be set by the two stocks' price prior to both running up last week on speculation of a deal. That means neither company will pay a premium price to take over the other. For money managers accustomed to seeing their performance boosted by 20-per-cent-plus premiums on takeovers of their Canadian oil holdings, a so-called at market merger is decidedly underwhelming. News of AEC's and PanCanadians' plans, released early yesterday, should have dampened interest in both names. Instead, they continued to climb. PanCanadian soared 18 per cent and AEC 6 per cent over the course of TSE trading Thursday and Friday. That jump reflects bets that the in-market merger will get topped. There's a small irony in the fact that the very logic that justifies this merger may also lead to its undoing. PanCanadian and AEC are courting one another because they need additional heft to develop major properties, such as PanCanadian's large and relatively unexplored holdings off Sable Island. Global players such as Shell, Mobil and Exxon are also drilling off the Nova Scotia coast, and they will take a look at PanCanadian as a way to add to their vast properties in region. At AEC, the attraction is the country's largest natural gas reserves. Here, a hostile bid would come from the U.S. companies feeding energy to an insatiable market. Once AEC and PanCanadian get past selling the Street on the merits of their deal, the only barrier the pair could erect to ward off a hostile interloper is a breakup fee. On a deal of this vast scale -- the two companies would be valued at $20-billion -- AEC might strike a bargain that says if jilted, it receives a 4-per-cent fee, or $800-million, from PanCanadian. Such arrangements crop up frequently in takeovers, but here a breakup fee would be difficult for AEC and PanCanadian to defend. Normally, such fees are only awarded by boards of directors to entice a sweetened offer or a white knight bidder. The at-market merger may well bear fruit in the future, but for money managers with short-term views, it's not as sweet as a hostile takeover. On the subject of breakup fees, it's worth noting that the influential OMERS pension fund came out this week in favour of limiting breakup fees to 2.5 per cent of the value of takeovers, on the grounds that higher fees are an unnecessary deterrent to takeover battles. Institutions such as OMERS are the ultimate owners of most Canadian companies. If the money managers don't embrace the idea of a made-in-Canada mega-energy deal, and early indications favour a better bid, then PanCanadian and AEC seems a match that will never be made. awillis@globeandmail.ca