After months of delicate negotiations, the stage appeared set last week for one of the largest takeovers in Canadian history. Paul Reichmann, the 55-year-old chief negotiator for his family’s $13billion real estate empire, had patiently crafted an agreement that would allow his family to purchase 60 per cent of Calgary-based Gulf Canada Ltd., the nation’s third-largest oil company, from Chevron Corp. of San Francisco. The price: $3 billion. At noon Wednesday, insiders said the deal appeared certain to go through. Then, suddenly, the Reichmanns withdrew their offer just hours before the 8 p.m. deadline, sacrificing a $25-million deposit in the process. Later, Paul Reichmann would say only that the story behind the pullout was “quite complex” and that “a number of things that had to fit together did not.” But in the aftermath of the collapse of a deal that would have changed the face of the Canadian oil industry, it appeared that no one could say for sure what would happen next—or why the talks had collapsed.
When the talks broke off, the Canadian investment community began buzzing with contradictory versions of how the deal collapsed.
Some observers speculated the Reichmanns were gambling that world oil prices would continue to fall, thereby lowering the value of oil companies in general and allowing the Reich-
manns to negotiate a lower -
price with Chevron.
But others insisted that a nervous federal cabinet had killed the deal. The previous week the cabinet had approved a request by Petro-Canada, the stateowned oil company, to pay the Reichmanns as much as $1.8 billion for Gulf’s five refineries and 2,500 service stations if the deal went through. Robert Robinson, an energy consultant with Loewen,
Ondaatje, McCutcheon and Co. in Toronto, said that at the last minute Prime Minister Brian Mulroney was persuaded to withdraw cabinet support. “The deal was done by about noon,” Robinson said. “It was Mulroney who pulled the plug.”
Andrew Sarlos, a leading Bay Street investment adviser and partner in Sarlos and Zukerman who has close dealings with the Reichmanns, told Maclean's that “the prime reason” for the Reichmanns’ abrupt withdrawal from the deal was a cabinet decision to order Petro-Canada out of the negotiations.
In Ottawa, Mulroney’s office did not comment, although Petro-Canada
chairman Wilbert Hopper insisted, “We had government support to proceed.” For his part, Paul Reichmann said that negotiations had not advanced sufficiently with Petro-Canada for a deal to be closed and denied that the Crown corporation’s participation was crucial to the completion of the Gulf purchase. Of the apparent contradiction between Reichmann’s version of events and his own, Sarlos said, “Paul Reichmann is too much of a gentleman to make a comment against the government.” Pressure on the cabinet to pull Petro-Canada out of the negotiations came from many directions. The Toronto-based Petroleum Marketers Association of Canada, which represents 20 independent businesses, accounting for 15 per cent of Canadian petroleum product sales, argued that if the deal went ahead it would lessen competition, particularly in refining and marketing. Indeed, the proposed purchase would have left the Calgary-based Crown corporation with total assets of about $11 billion, making it the largest oil company in Canada. “We made phone call after phone call,” said James Conrad, the association’s executive vice-president, “and Telexes went to every member of the cabinet.”
The Conservatives were also stung by criticism that their support for the deal flew in the face of a longstanding commitment to minimize government involvement in business. Said Richard Hallisey, an oil analyst with First Marathon Securities Ltd. of Toronto: “You’re talking about a 180-degree turn for the Conservatives, from saying they would lessen government content in industry—including oil and gas—to supporting another major oil and gas acquisition by the state.”
According to Sarlos, the cabinet also feared that a Petro-Canada purchase of Gulf’s refineries and service stations
could lead to layoffs in Eastern Canada. Most analysts agree that the country has too much refining capacity. Hallisey called refining and marketing “financial sewers. Nobody,” he added, “will pay anything for them.” But Petro-Canada saw the purchase as a chance to boost its profile in Western Canada, where Gulf has a strong retail presence.
A further complication came with the late entry of Toronto-based Norcen Energy Resources Ltd., an oil and gas company controlled by Toronto financier Conrad Black. Analysts speculated that Norcen was interested in Gulfs share of the rich Hibernia oilfield off the Newfoundland coast.
As negotiations wore on—the Reichmanns requested and received three extensions from Chevron—and the tension and criticism mounted, government support for Petro-Canada’s role apparently weakened. In Ottawa a battery of key ministers, including Finance Minister Michael Wilson, Minister of Regional and Industrial Expansion Sinclair Stevens and Treasury Board president Robert de Cotret, renewed efforts to convince the Prime Minister to withdraw support from Petro-Canada. Late on Wednesday afternoon, Sarlos said, Mulroney telephoned Hopper to inform him that the cabinet was withdrawing its approval.
Energy Minister Pat Carney was disappointed by the collapse of negotiations. The Vancouver MP had argued that the sale of Gulf by Chevron offered a unique opportunity to transfer key elements of the oil industry, including Gulfs holdings in the strategic Hibernia and Beaufort Sea oilfields, to Canadian hands. Carney was relaxing in her home overlooking English Bay when a reporter told her about the collapse of the deal. She said: “I’m very disappointed. I feel the Canadianization of Gulf is in the national interest.”
Chevron spokesmen were unwilling to say what the company plans to do with Gulf. A company statement issued in San Francisco said that Chevron hoped to “realize a substantial amount of cash from the reorganization or disposition of its Canadian interests.” The company is carrying a mammoth $12.8-billion (U.S.) debt, $10 billion of which was borrowed last year to finance the $13.2billion takeover of Gulf Canada’s U.S. parent, Pittsburgh-based Gulf Oil Corp. By week’s end, Bay Street was rife with rumors that the Reichmanns would soon make another proposal for Gulf at a lower price. But Chevron executives insisted that they would not accept less than the $22 a share proposed in the Reichmanns’ original bid. Said Chevron vice-president Thornton Savage: “There isn’t a chance of reviving the deal.” -MARC CLARK, with Patricia Best and correspondents ’ reports.
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