Petro Canada & Suncor's merge

News from CNN
Suncor Energy Inc, Canada' No. 2 oil company, agreed to buy rival Petro-Canada for about $18.43 billion Canadian ($14.86 billion U.S.) to expand its oil sand reserves and create the country's biggest energy group.

The deal comes after a period of missed earnings targets and project delay at Petro-Canada, and is expected to be completed in the third quarter of 2009.

The all-share offer represents a premium of about 28% to the $29.65 Canadian closing price of Petro-Canada shares on Friday as assuming 484.4 million Petro-Canada shares outstanding as of Dec. 31, 2008.

On completion of the proposed deal, Suncor's existing shareholders will own about 60% and Petro-Canada shareholders will own about 40% of the merged company, the companies said.
Petro-Canada (PCZ) shareholders will receive 1.28 common shares of the merged company for each Petro-Canada share, while Suncor shareholders will get one common share of the merged company for each Suncor (SU) share.

The companies expect to achieve annual operating expenditure reductions of $300 million.
They also expect to achieve annual capital efficiencies of about $1 billion through elimination of redundant spending and targeting capital budgets to high-return, near term projects.

The deal would combine Petro-Canada's extensive retail gasoline and refining business and its international operations with Suncor's extensive operations in the oil sands, where it is the No. 2 producer behind Syncrude Canada Ltd.Petro-Canada delayed its Fort Hills oil sands project last year because of rising costs.

Petro-Canada has also faced pressure to boost the value of its shares, which have lagged rivals because the company's management has failed to boost production and the firm's repeated failures to meet earnings targets.

Its shares have dropped 31% over the past 12 months while Suncor stock is down 35%.

The news confirms a report in the Wall Street Journal which said the two companies were in advanced talks

Bilibala's comments
This is a great time to make some short term profit. I've sold Petro Canada at CA$37.5 today, since the acquisition price is about $38.0.
(I will not blindly keep the "buy & hold" strategy just for "buy & hold". When I see an opportunity to realize 41.5% gains in 1 month. Why not?)

Also, Sunco and Petro Canada still need to wait for approval from federal government, if government rejects their plan, the stock price will drop back. Even it gets approval, the deal is $38.0 and it will have limited room to rise any higher than $38 until the deal has been settled.

In long run, merge is a good way to expand, to save cost and to strengthen ones cash position in a financial crisis environment.
On the other hand, a successful merge must add the strength of the 2 companies and reduce the weakness. Fail to do this, may lead to slow growth in very long term.