Industry Analysis 1
Petro-Canada Pre-Merger 3
Suncor Pre-Merger 5
The Terms of Transaction: 7
Setting for the Analysis 9
Post Merger Performance 12
Mergers and acquisitions have become a key function in the business world. Proper management and strategic planning are required for a merger to be successfully completed. The oil industry is a an always strong and developing market therefore the Suncor/Petro-Canada merger provides a great example of a merger that can benefit both parties and allow the development of one well organized prospective company. The report provided below will cover the main aspects involved in a merger. Key points include, the economic setting of the business, the terms and conditions of the transaction, analysis, post-merger performance as well as an evaluation and prognosis.
When looking at past Merger & Acquisitions, economic conditions and goals heavily influences the true motives of each company involved. Suncor and Petro-Canada's merger in the summer of 2009 was indeed no different. Both major Canadian public companies in the Oil and Gas industry were faced with very unique circumstances that truly marked a milestone in Canadian Corporate Finance.
The Oil and Gas industry in the past few years has been extremely volatile. Especially in the recent economic turndown, the volatility of gas and oil in the commodities market is a difficult aspect of riskiness that corporations try to hedge. As we will see for Suncor and Petro-Canada in 2008-2009, these economic variables were working against their success in the energy market. As mentioned before, there are many motives for M&A. However, it seems that although it was evident that a merger of both companies could improve financial performance, it was the collapse in commodity prices and high costs of accessing capital that initiated the idea of a merger.
Chart demonstrating the crash in oil prices that lead Suncor and Petro to merge and hedge them against future volatility risk exposure
The prices of most commodities are highly correlated with oil and gas prices. The increasing demand of these commodities matched with a slower increasing rate of reserves creates higher prices which thus creates the high volatility of the market. Hence, energy companies must be highly developed in risk management. Furthermore, in Suncor and Petro-Canada's situation, their economic setting of 2008-2009 created difficult circumstances that both companies acted upon. They decided to diminish their risk exposure by merging together creating Canada's biggest energy company.