Money manager rejects Petro-Canada, Suncor merger

A Montreal-based investment manager says it will vote against the merger of Suncor and Petro-Canada because the deal "overvalues Suncor and undervalues Petro-Canada."

Letko Brosseau & Associates manages portfolios that hold about 10.4 million Petro-Canada shares, or about two per cent of shares outstanding.

Petro-Canada and Suncor said on March 23 that they would merge, with Petro-Canada shareholders getting a 38 per cent stake in the combined company.

Petro-Canada is not concerned about Letko Brosseau's opposition, a spokeswoman said. "The majority of shareholders we've spoken to support the merger," said Andrea Ranson.

And several analysts said Letko Brosseau's holding was not large enough to threaten the deal.

Letko Brosseau said Thursday its analysis shows that when the two companies are compared, Petro-Canada:

Generated more cash in 2008.Made more profit in 2008.Produced and refined more oil.Had less than half as much debt.

But despite all its advantages, "Petro-Canada shareholders are to receive only 38 per cent of the new entity, while Suncor shareholders will receive 62 per cent," Letko Brosseau said in a news release.

Three-month Petro-Canada TSX trading

Its analysts believe that "Petro-Canada has a value at least equal to that of Suncor," so the deal, as structured, "is inappropriate."

The firm also criticized the "fairness opinions" contained in documents given to shareholders before back-to-back votes on the deal set for June 4 because the opinions don't actually value the companies.

"These opinions specifically exclude any valuation of Petro-Canada or Suncor and they do not embody any analysis of their respective securities or assets.

"These limitations, in our view, disqualify these letters as offering a complete assessment of the fairness of this important transaction and as such, should not be relied upon by the directors or shareholders."

A match 'made in Canada'

When they announced the deal, Suncor's president and CEO Rick George and Petro-Canada president and CEO Ron Brenneman emphasized the Canadian nature of the merger.

"I don't know if it is a marriage made in heaven. But it is a match made in Canada," George said.

The all-stock deal gives Petro-Canada investors a 25 per cent premium, compared with the share price over the 30 days before the March 23 announcement, the companies estimated.

Since the deal was announced, Petro-Canada stock has jumped nearly 50 per cent to almost $43, from $29.65 on March 20. It closed down $1.09 at $41.61 in TSX trading on Friday.

Suncor shares rose less than $4 over the same period, to about $34.60. Suncor stock was off $97 cents to $33.67.

Oil prices, a key factor in oil company stock values, are up about 10 per cent over the same period.

With files from The Canadian Press