NEWSMAKER-Suncor, Petro-Can CEOs face integration hurdles
By Euan Rocha
TORONTO, March 23 (Reuters) - Suncor Energy's (SU.TO) Rick George and Petro-Canada's PCA.TO Ron Brenneman have put together a deal to create Canada's biggest oil company, but the biggest hurdles to face the two industry veterans may still lie ahead of them.
Suncor has agreed to acquire Petro-Canada for C$18.43 billion ($14.9 billion), but analysts and industry experts are concerned that a deal of this size could be threatened by integration risks, regulatory challenges and a much greater exposure to the Canadian oil sands.
"I'm not a believer in the fact that this creates a dramatically different and stronger entity. More often than not, one plus one equals two, not three." said Benchmark Co analyst Mark Gilman.
"And in my mind, not withstanding the comments made by the respective managements on the conference calls this morning, the extent to which this is a one plus one equals three is something that still pretty much escapes me," said Gilman.
George, has led Suncor from strength to strength since becoming chief executive in 1992, but Petro-Canada's conventional offshore and international assets could present totally different problems from the ones posed by Suncor's traditional oil sands operations.
Andre Plourde, chairman of the department of economics at the University of Alberta, is puzzled by the rationale behind the deal, as he sees it giving Rick George and Suncor fairly limited options for generating cost savings.
George will be CEO of the merged entity, while Petro-Canada CEO Brenneman will assume the post of executive vice-chairman in the merged company.
However, not everyone is skeptical about the prospects of the merged entity.
Thomas d'Aquino, chief executive and president of the Canadian Council of Chief Executives sees the deal as a bold and creative initiative that will establish a globally competitive energy powerhouse.
D'Aquino believes that George and Brenneman have the extensive experience required to be able to integrate a merger of this scale.
Brenneman, prior to joining Petro-Canada as president and chief executive in January 2000, worked for over three decades for Imperial Oil Ltd (IMO.TO) and its parent company Exxon Corp, which is now Exxon Mobil (XOM.N).
He has worked in both the upstream and downstream businesses -- both he and George believe that the two companies have very similar cultures, which should ease the whole integration process.
George said on a conference call that his experience in working on the Transocean-GlobalSantaFe deal would help with the integration process. He is a member of the board of directors of Transocean (RIG.N), the world's largest offshore drilling contractor.
Brenneman and Petro-Canada have come under increasing pressure lately as its results have fallen short of expectations and the share price has lagged.
Last month, the Ontario Teachers' Pension Plan announced that it had boosted its stake in Petro-Canada nearly fourfold within a quarter, raising speculation that the fund manager intended to take a more activist role within the company.
Benchmark's Gilman said Petro-Canada's acceptance of the Suncor deal could be viewed as a capitulation to the increasing shareholder pressure that Brenneman and the company were facing.
"Their (Petro-Canada's) performance, measured almost anyway you like, has not been good ... The performance issue is certainly an important element of what transpired here, as is the industry environment," Gilman said. ($1=$1.22 Canadian) (Reporting by Euan Rocha; editing by Rob Wilson)
