OTTAWA -The $19-billion merger between Suncor Energy Inc. and Petro-Canada is contingent on the two companies persuading Ottawa to repeal the nearly two-decade-old law that limits share ownership in the former Crown corporation.
According to a 90-page document outlining the conditions of the merger agreement released Monday night, the two companies agreed to lobby the federal government to abolish the long-standing law.
A clause in the document states the two companies "shall co-operate and use their reasonable commercial efforts" to get the federal government to "support a repeal" of the Petro-Canada Public Participation Act.
The law, enacted in 1991 when the company was privatized, limits a single shareholder from holding more than 20 per cent of Petro-Canada stock, compels that the head office be based in Calgary and obliges the company to provide services in English and French.
Analysts say the act’s ownership limits were a drag on Petro-Canada’s stock, and caused it to underperform its peers for years. The same fate likely awaits the merged company unless Ottawa scraps the act.
"It is hard to make a case that you should in any way single out a private-sector corporation for special treatment of a kind not applicable to any other private-sector firm," said Andre Plourde, head of the economics department at the University of Alberta. "This will lead to some rethinking in Ottawa about how this should, or should not, apply. It is hard to explain why this makes sense when Petro-Canada is not a self-standing corporation."
Jack Mintz, public-policy professor at the University of Calgary, said Suncor might have sought this deal to protect itself from a potential takeover by a foreigner. He said there are concerns among oilpatch players that financial-market conditions – low stock valuations and cheaper oil – have made them ripe takeover targets.
He said the law is a relic of the 1970s and 1980s. Ottawa created the company in bid to ensure energy security and offset foreign domination of the Canadian industry and the government held shares in Petro-Canada until 2004, when it sold its remaining 19 per cent interest.
"This is a form of protectionism, and it does raise questions . . . as to what degree do you need a Canadian-owned company operating the oilsands," Mintz said.
Asian experts suggest China is set to go on a shopping spree for natural-resource assets, and Canadian companies are at the top of its list.
The federal government has been tight-lipped as to the future of the act. Responsibility for the act falls under Finance Minister Jim Flaherty. His spokesman said the Finance Department would "assess" the agreement in relation to the act once all the details are available for Ottawa to review.
Flaherty’s office declined to elaborate on further questions, such as the future of the act and whether it is redundant.
Canwest News Service
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