Privately held Husky Oil Ltd., controlled by Hong Kong billionaire Li Ka-shing, is swallowing struggling Renaissance Energy Ltd. in a $2.58-billion deal that would create one of Canada's largest oil and gas companies.
Husky's planned takeover of Renaissance will yield a combined company that ranks among the top six Canadian-headquartered energy firms, based on market capitalization, oil and gas production and gasoline retailing.
The new merged company will be called Husky Energy Inc., which will trade on the Toronto Stock Exchange and will represent a re-emergence of Husky as a public company after years of privacy. Taking the helm as CEO will be John Lau, Husky Oil's chief executive officer.
The deal, which requires court, regulatory and shareholder approvals, will also represent the end of the line for oil patch veteran Renaissance as an independent.
The senior company has been working furiously to regain its once-stellar footing after investors soured in recent years over missed production targets and concerns about reserve estimates. Its shares, which had flirted with $50 in early 1997, hit a recent low of $10.15 earlier this year.
The ownership split of the new company will be 65 per cent for Husky Oil shareholders and 35 per cent for Renaissance shareholders. Husky shareholders are offering to acquire additional shares from Renaissance shareholders and will end up with 71.5 per cent of the combined company if their offer is accepted.
Husky and Renaissance say Renaissance shareholders could receive $5.83 a share in cash and the rest of the deal would be shares in the newly created company.
Ron Greene, chairman and acting CEO of Renaissance, says calling the deal a takeover is unfair. He describes it as a merger. He says the company had plenty of options but chose Husky because of its growth potential.
"What we've tried to do is structure a transaction that gives shareholders a premium from where the stock has been, to satisfy those that want immediate gratification but also to put them in a position where they are shareholders in a much more exciting, much more viable, stronger company." Mr. Greene says Renaissance's oil and gas assets complement Husky's heavy oil, oil sands and East Coast offshore crude projects.
"It creates a very exciting opportunity for our shareholders . . . that we could not have duplicated one project at a time over the next five years."
Analysts say the takeover of Renaissance allows Husky to "back into" publicly traded status using an existing company rather than spending more time and cash conducting an initial public offering.
But analysts say Husky and Renaissance have so far failed to provide enough information, which they and the market need to scrutinize the deal.
In particular, they say not enough is known about the details of Husky, a private company. That makes it very difficult to place precise values on the stock transaction taking place, they say.
"You're trying to take Husky public by ramming it down everybody's throats in an hour and a half without anybody knowing what Husky's all about," says David Stenason, a Montreal-based analyst at Scotia Capital Inc.
He says Scotia Capital has reduced its rating on Renaissance to "sell" from "hold" in part because not enough is known about the deal.
Mr. Stenason suggests Renaissance shareholders consider selling the stock and buying Petro-Canada if they want to participate in East Coast offshore petroleum plays such as Terra Nova.
Several other analysts contacted expressed frustration at the lack of information available to value the new Husky, a company that officials say will have a market capitalization of $7.2-billion.
"It makes it very difficult to do our job with respect to whether [the deal]is fair or not," says Brian Prokop, an analyst with Peters & Co. Ltd. in Calgary.
Analysts say it appears, based on what little information is available, that Renaissance shareholders bring more to the table than they get back from their holdings in the new company.
"[At first glance]it's very good for Husky, not so good for Renaissance shareholders," Mr. Prokop says. "The market seems to be reflecting that."
The analysts' comments came as investors shaved 2.71 per cent off the value of Renaissance shares on the TSE. The shares have enjoyed incredible growth of 60 per cent in value since March, partly on takeover speculation. The stock closed off 45 cents at $16.15 yesterday. More than 4.6 million shares -- a very heavy daily volume -- traded hands.
Husky spokeswoman Laurel Nichol says more details will be forthcoming in a circular filed with the U.S. Securities and Exchange commission shortly -- as well as in a circular Renaissance shareholders are expected to receive by mid-July.
The deal was only inked between Renaissance and Husky at 2 a.m. yesterday. Ms. Nichol says the companies wanted to alert the market as soon as possible about the deal.
Yesterday's announcement means Husky has shelved its plans to take two years before launching an initial public offering.
Husky had envisaged doing an IPO in 2002 for up to about one-quarter of the company, but "we've put the whole thing . . . two years ahead of schedule," said Husky's Mr. Lau.
Mr. Lau said he would like to see his company boost its Central and Eastern Canadian retailing presence to "link up from East to West," possibly through acquisitions of existing service stations east of the Manitoba-Ontario boundary.
Husky currently runs almost 600 gasoline stations, under the Husky and Mohawk names, located mostly in Western Canada.
"We are very strong in the West. We have a minor position in the East," he said. "You will see that Husky won't stop. We will be going places."
Mr. Lau said Husky would benefit when it becomes a publicly traded company because of access to raising money from equity markets.
HUSKY ENERGY: A SNAPSHOT OF A NEW COMPANY
Retailing: - Husky Oil Ltd.'s plan to buy rival Renaissance Energy Ltd. would create Canada's sixth-largest publicly traded integrated oil company. Combined 1999 results: - Net revenue: $3.7-bilion - Earnings: $198-million - Cash flow: $1-billion - Capital spending: $1.2-billion - Book value: $8.8-billion - Net debt: $3.3-billion - Employees: 1,800 (1,000 Husky, 800 Renaissance) Shares outstanding: 429 million (71.5 per cent owned by Husky Oil shareholders, including Hutchison Whampoa Ltd. and Hong Kong billionaire Li Ka-shing, and the remainder owned by Renaissance shareholders.) Exploration and production: - Estimated 2000 production: 184,000 barrels of oil and gas liquids a day, 681.5 million cubic feet of natural gas a day (second-largest Canadian producer.) - Proved reserves: 610 million barrels of oil and gas liquids, 2.529 billion cubic feet of natural gas. - Probable reserves: 514.7 million barrels of oil and gas liquids, 526 billion cubic feet of natural gas. - Undeveloped land: 10.4 million acres (Western Canada only) How Husky Energy will rank amoung the top oil & gas companies: Ranked by 1999 revenue, $billion
Imperial Oil $9.2 Petro-Canada $6.1 Shell Canada $5.4 Canadian Ultramar $4.4 PanCanadian Petroleum $4.0 Husky Energy $3.7 Husky Oil $2.8 Renaissance Energy $1.1
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- RENAISSANCE ENERGY LTD.