BUSINESS WATCH

A threat to the public interest

Peter C. Newman July 6 1987
BUSINESS WATCH

A threat to the public interest

Peter C. Newman July 6 1987

A threat to the public interest

BUSINESS WATCH

Peter C. Newman

Seldom has there been as clear a division between public and private interest as in the case of Dome Petroleum Ltd., which is on the brink of either going into bankruptcy, finally resolving its troubled finances, or being taken over by an American energy giant.

As of this writing, the Calgary-based company remains tied to the $5.1-billion offer made by Amoco Corp. of Chicago, a bid that has been rejected by most of Dome’s creditors, but could be sweetened considerably to nullify their objections. Under American law, Amoco could fully consolidate its financial returns with a newly acquired Dome, allowing it to take advantage of provisions in the tax systems of both countries that favor oil-producing companies. Since such benefits depend on Amoco owning fully 100 per cent of any subsidiary, Dome would vanish as a Canadian enterprise. This would mean that the last great known reserve of secure oil and gas supplies in the free world would be removed from effective Canadian control—even though it was built on the backs of Canadian taxpayers.

With such a valuable treasure at stake and a lending capacity second only to Exxon Corp. among the Seven American Sisters, Amoco may decide to improve its current offer either by increasing the total to take better care of Dome’s secured creditors or by switching some or all of the $550 million that has been offered to Dome shareholders. Amoco has been asking Dome’s impatient creditors to forgive $1.6 billion of the company’s $6.3-billion total debt on the theory that money in the pocket is better than the kind of windy promises Dome chairman Howard Macdonald has been making for the past three years.

Apart from the $264-million claim by Swiss debenture holders, which could still scuttle the company, because under Swiss law a creditor is not bound by the actions of fellow creditors, the main problem will be what to do about Dome’s 48,000 shareholders. The Canadian banks have been loudly claiming that Dome’s long-suffering shareholders are owed nothing or that, if they do get cash for their stock, they should really pay it back to the banks, because they took their chances, and Dome is now, in effect, bankrupt. The counter argument is that even if, theoretically, the shareholders are entitled

to nothing, it makes good moral and political sense to pay them off.

The moral dimension comes in because long after the extent of Dome’s money problems was public knowledge and before the price of oil cracked, the shareholders put in more money as part of a proposal to satisfy the credithungry banks. Because the stockholders did come to the table one more time at the banks’ behest, their current offer of $1.50 per share seems

modest enough—particularly considering the fact that Dome stock once traded at more than $25. The more practical consideration is that, given nothing to lose, some Dome shareholders might decide to launch a class action (one already has), which could tie up the deal for years in court.

The Amoco deal will go through if Canadian bankers, who claim they are being cheated out of at least $550 million, are mollified. But Macdonald’s tactics have not worked the way they

were supposed to. The idea was that Dome’s still-valuable assets would not be placed on the auction block, because only by joint action between a predetermined buyer and Dome could the scores of creditors on four continents be kept in line. It is no coincidence that Macdonald and two other highranking Dome executives (Brian Little and George Watson) have been promised in the neighborhood of $4 million if Dome can find itself a new owner.

At the same time, the level of the Amoco offer is highly debatable because the Chicago company will be buying our largest oil reserves at about $6 a barrel, just when the international prices are reaching the $27 level. But if the banks drive Dome into bankruptcy, its individual oil and gas holdings may be worth more than the Amoco offer. At the moment the banks, which are among Dome’s most solidly secured creditors, claim they are getting only 88 cents on the dollar. A bank-sponsored liquidation would hurt the industry and the entire western Canadian economy.

While Ottawa has consciously been staying out of the bargaining, the loss to Canada of Dome to Amoco would be staggering. Not only would the huge Beaufort reserves slip out of our control, but all of the considerable northern technology gained by the Calgary company would be lost to us—even though it was largely financed by our tax dollars. Particularly now, when the Mulroney government has been making so much noise about Arctic sovereignty, Dome should not be allowed to slip from Canadian hands. We would be handing over to the Americans the largest and potentially most lucrative slice of our North—and the technology with which to exploit it.

The great irony of this whole deal is that it is coming to a head at precisely the same moment as free trade talks between the two countries have reached their make-or-break stage. Brian Mulroney may feel that stepping in now and interfering in the Dome situation would jeopardize the alreadyfragile negotiations. That is not too high a price to pay. The federal government should treat the future of Dome as essential to the preservation of Canada’s northern sovereignty, instead of pretending that the Amoco takeover is just another business deal.

For once, the public interest must be placed ahead of private greed. Canada may be open for business, but irreplaceable assets like Dome must not be sold.