A couple of large deals comprise the latest crest of the mergers and acquisitions wave in Canada.
Soon to be transformed or disappear altogether are these well-known Calgary names: Husky Oil Ltd., Renaissance Energy Ltd., Ranger Oil Ltd., and Canadian Natural Resources Ltd.
Two other venerable names in the engineering and construction sector will remain, Fluor Corp. and Stone & Webster Inc., but the two companies nevertheless will undergo major transformations.
Meanwhile, an unusual transaction involving Canadian firms focuses on a Kyrgyzstan refinery and a new "dot-com" company.
Husky, Renaissance
Privately held Husky Oil and Renaissance have agreed to merge. The new company, Husky Energy Inc., will be Canada's second largest producer of oil and natural gas and its fourth largest downstream retailer.
Both Husky and Renaissance say the new entity would have a pro forma market capitalization of $7.2 billion (Can.), production of 252,000 boe/d, and total proven and probable reserves of more than 1.43 billion boe.
Terms of the agreement call for Husky to purchase up to 27.8 million shares of Renaissance at a price of $18 (Can.)/ share. The maximum purchase price under the cash option is $500 million (Can.). Renaissance shareholders can also opt to receive one common share of Husky Energy stock in exchange for each share of Renaissance they own. All Renaissance shareholders, including those who opt for cash, will receive a special return on capital of $2.50 (Can.)/share from Husky. The deal also includes a break fee of $82 million (Can.), should the deal be terminated. Husky Oil and Renaissance shareholders will hold 65% and 35% interests, respectively, in the new company.
Based on annualized first quarter 2000 pro forma results, Husky Energy will generate revenues of more than $5 billion (Can.), earnings of more than $485 million (Can.) and cash flow of $1.55 billion (Can.) in 2000.
John C.S. Lau, CEO of Husky Oil, says the merger is a major step in realizing future growth potential. "The complementary nature of our respective assets creates a more diversified, balanced, and high-quality growth-oriented platform," said Lau. "We will be well-positioned to realize the full profit-generating potential of our high-growth opportunities in heavy oil, oilsands, and offshore [Canada's] East Coast."
The merger also will make Husky well-positioned to pursue its international projects, including those in Asia, the firm says.
Ronald G. Green, chairman of Renaissance's board and acting CEO, says company officials have been indicating publicly for some time "that a merger was one way in which we might pursue the objectives of the strategic repositioning process we initiated a number of months ago." The combination will instantly move Renaissance into several new medium and long-term upstream operating areas as well as midstream and downstream activities. It also gives the company more balance in its risk and asset profiles. Renaissance's board has already approved the merger, says Green.
Husky Oil brings to the corporate marriage its significant heavy oil and infrastructure operations in the Lloydminster region along the Alberta-Saskatchewan border, including medium and heavy oil production of more than 54,000 b/d and 1,200 miles of pipelines with current throughput nearing 500,000 b/d. It holds interests in the Jeanne d'Arc basin off Newfoundland as well-a 72.5% interest in White Rose oil field and 12.5% in Terra Nova oil field. Husky Oil also has a heavy oil upgrader producing 62,000 b/d of synthetic crude, operating in conjunction with a 25,000 b/d asphalt refinery. Almost 30% of Renaissance's crude oil production is within this region, creating the opportunity for significant synergies.
Husky Oil also produces 260 MMcfd of gas and holds a substantial interest in gas processing infrastructure, including a 72% working interest in the 430 MMcfd Ram River plant and an 11% interest in the 115 MMcfd Caroline plant. Both plants are in Alberta. These plants complement Renaissance's 400 MMcfd of mostly shallow gas production in the province.
Ranger, Canadian Natural
Ranger Oil reached an agreement with Canadian Natural under which the latter will offer to purchase all of Ranger's outstanding common shares. Ranger's board recommended shareholders accept the Canadian Natural offer.
The transaction will save Ranger from the clutches of Petrobank Energy & Resources Ltd., which made an unsolicited takeover offer for Ranger in April and has been pursuing the company doggedly ever since (OGJ, Apr. 17, 2000, p. 42).
Terms of the agreement call for Canadian Natural to offer $8.25 (Can.) cash per Ranger share, up to a maximum of $650 million (Can.), or 0.175 Canadian Natural share for each share of Ranger, up to a total of 10 million Canadian Natural shares.
The cash offer represents a 53% premium over Ranger's average closing share price of $5.39 (Can.) for the 20-day period prior to the start of Ranger's strategic alternatives review process on Apr. 5, 2000.
"This offer is in the best interest of our shareholders," says Fred Dyment, president and CEO of Ranger. "The Canadian Natural bid recognizes the strong underlying value of Ranger's assets and operations."
The combination also creates "a stronger platform to expand Ranger's international activities and pursue new opportunities," says Dyment.
Kyrgyzstan, dot-com
Petrofac Resources International Ltd. signed a letter of intent with Kyrgoil Corp., Calgary, under which Petrofac will purchase 50% of Kyrgyz Petroleum Co., a unit of Kyrgoil and operator of an oil refinery in Kyrgyzstan.
Petrofac, a major shareholder of Kyrgoil, is offering cash and proposes to cancel certain shares it holds in Kyrgoil in exchange for Kyrgoil's 50% interest in Kyrgyz Petroleum.
In a related deal, Ontario-based software firm Objectools.com Ltd. has proposed a business combination with Kyrgoil, under which Objectools shareholders will exchange their shares for Kyrgoil common shares. Under the proposal, Objectools shareholders will hold about 88% of Kyrgoil's shares and existing Kyrgoil shareholders about 12%.
Prior to the transaction, Kyrgoil holders will receive one new common share and one half of one warrant for every 25 common shares held. Each whole warrant will entitle the holder to purchase one Kyrgoil share at an exercise price of $5 (Can), subject to certain conditions.
Kyrgoil said completion of the transaction is subject to completion of a private placement by Objectools of at least $10 million, regulatory and shareholder approval, and other requirements.
Privately held Objectools develops and operates an internet portal for the sale, licensing, rental, exchange, and transfer of object-oriented software and software components.
Fluor to split off
Fluor's board has approved a plan to spin off a company, resulting in the creation of two publicly held companies, Fluor Corp. and Massey Energy Co. (currently A.T. Massey). Fluor Corp. will focus on engineering and construction, while Massey will focus on coal mining.
Fluor shareholders at the time of the spin-off will retain their existing Fluor stock, which will become Massey Energy shares, and will also be issued one share in new Fluor stock through a tax-free distribution. The proposed transaction, set for completion within 6 months, is subject to shareholder approval, establishment of new capital structures, and a favorable ruling by the Internal Revenue Service.
"The proposed transaction creates two separate companies, each a leader in its respective field, with strong opportunities for future growth and expansion," said Fluor Chairman and CEO Philip Carroll. "We believe this transaction will enable the respective management teams to focus more closely on their businesses and provide the flexibility for each company to grow in a way best suited for its industry."
Carroll added the company also believes the spin-off will allow investors to evaluate the financial performance of each company independently and create meaningful value for present Fluor shareholders.
Under terms of the proposed spin-off, Massey is expected to have a debt-to-total capitalization ratio of less than 50%. The company expects to secure an investment-grade rating.
The new Fluor Corp. also is expected to maintain a conservative statement of financial condition designed to preserve its A debt rating, the company said. Any excess cash resulting from the transaction will be utilized to fund new business initiatives.
For the fiscal year ended Oct. 31, 1999, A.T. Massey reported assets of $2 billion with operating profit of $147 million on revenues of $1.1 billion. Overall, for the same period, Fluor Corp. reported assets of $4.5 billion with operating profits of $399 million (excluding a special provision) on revenues of $12.4 billion.
Upon completion of the transaction, Fluor Corp. will consist of three strategic business units-Fluor Daniel, Fluor Global Services, and Fluor Signature Services-all headquartered in Aliso Viejo, Ca. Massey Energy Co. will be headquartered in Richmond, Va., its current home.
Stone & Webster
Stone & Webster filed a voluntary petition for reorganization under US bankruptcy law and a definitive sales agreement with Jacobs Engineering Group Inc. The two moves are part of a deal between the two engineering firms that was announced last month (OGJ Online, May 10, 2000).
Under terms of the transaction, Jacobs will acquire substantially all of Stone & Webster's assets in exchange for $150 million in cash and stock and the assumption of substantially all of Stone & Webster's liabilities as of Mar. 31, 2000, standby letters of credit, and its liabilities under a new credit facility with Jacobs, entered into on May 9. Jacobs is also making up to $50 million of credit available to Stone & Webster so that the firm can continue to operate until the asset sale is completed.
In conjunction with and as a condition to the proposed acquisition, Stone & Webster will be seeking bankruptcy court approval of the asset sale and credit agreement.
Stone & Webster said it "fully expects to continue operating its businesses in the normal course during the reorganization process," adding, "The company's operations have remained functional, and its employees are expected to transition smoothly into the Jacobs organization."
H. Kerner Smith, Chairman, President, and CEO of Stone & Webster, said, "We continue to believe that this transaction, as well as the...voluntary court filing, are in the best interest of all of Stone & Webster's constituencies, including its employees, shareholders, clients, suppliers, and lenders. We hope to move forward with the reorganization as quickly as possible."
The proposed transaction is subject to antitrust and bankruptcy court approvals, among other conditions.
Stone & Webster said, "Because the proposed sale of assets will occur in the context of a pending Chapter 11 case, it is not possible to determine at the present time what value, if any, will ultimately be received by Stone & Webster's stockholders. Such a determination can only be made after the completion of the competitive bid process provided for under Chapter 11, consummation of the asset sale transaction, and the substantial resolution of Stone & Webster's Chapter 11 case."
