The Merger of Suncor Energy Inc & Petro Canada

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The Merger of Suncor Energy Inc
& Petro Canada

Date: November 23, 2010

Deal Summary

Event| Merger|
Bidder| Suncor Energy Inc|
Target| Petro-Canada|
Announcement Date| March 23, 2009|
Effective Date | August 1, 2009|
Type | Stock Exchange|
Exchange ratio | 1.28 |
Stock Price| Petro Canada- C$29.67 and Suncor- C$30.74 (as of March 20, 2009)| Premium Paid| 28% (Based on stock price at March 20, 2009)| Total Offer| C$18.43 billion|

Table of Contents
Introduction………………………………………………………………………………………...….1 Global Recession…………….…………………………………………………………………......…..1 Industry Trend……………………………………………………………………………………..…..2 Background & Motivation
* Market………….……………………………………………………………………..…....3 * Petro Canada…….…………………………………………………………………………3 * Suncor…………….…………………………………………………………………..…....4 Strategy and Setting Analysis…………………………………………………………………..…..…6 Terms of the Transaction……………………………………………………………………..…….....7 Evaluation of the Transaction

- Discounted Cash Flow Model……...……………………..………………………………..….9 - Discounted Cash Flow Analysis…..……...…………………………………………………..11 -Sensitivity Analysis ………...…………………………...……………………...………....….13 Post Merger Performance

- Financial Data Comparison...………………………………………………………………....14 - Holding Period Return………………………………………………………………………..16 Summary & Conclusion…………………………………………...………………………………......17 Appendix………………………………………….……………………………………………….……18 Bibliography…………………………………………………………………………………………....25 Introduction

Over the last decade, there has been increasing merger and acquisition (M&A) activities all around the world. There are many reasons why companies would engage in M&A activities; creating synergies being one of the main incentives. However, not all companies would get a positive result if due diligence and strategic decisions are not planned carefully. In March 2009, Suncor and Petro Canada, two of the most well known oil companies in Canada, proposed to merge together to create the biggest oil company in the country. The deal would produce a new integrated national champion and is said to result in C$1.3 billion annual savings for the combined company. Suncor would be able to cut costs at its oil sands operations by adding Petro-Canada's oil sands properties to keep growing notwithstanding the low oil prices. Despite all the advantages, the companies were faced with antitrust issues as many were concerned that a monopoly would occur in the industry. This paper will evaluate if both firms made the right decision to merge by analyzing their motivations, deal transaction, as well as looking at the pre and post merger performance comparison. Before we get into details of each company’s background and the impact of the transaction, it is important to firstly look at the economic and industry trends that force the two companies to merge. Global Recession

The bursting of the United States housing bubble, which peaked in 2005 - 2006, was the main cause of the 2007 financial crisis. This crisis was infectious as it spread worldwide causing a global recession. The real gross domestic product (GDP) growth rate of the United States for 2009 was forecasted at a rate of 2%. This is relatively low when being compared with the worldwide GDP growth, which was averaging 4.5% in years prior to the 2007 financial crisis. The growth of 2% is also considerably low when compared with the real GDP growth rate of 3.8% and 4.7% in 2008 and 2007 respectively in the United States. The fact that the U.S. economy was in a state of recession in 2008 had minimal effects on the worldwide real growth rate. However, the state of the U.S. economy had a substantial impact on countries, mainly Canada and Mexico whose own economies rely heavily on that of United States. The real GDP growth rate for Canada will therefore be negatively impacted and decrease due to the conditions of the U.S. economy. In Europe, countries were also negatively impacted with real...
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