Petro-Canada & Suncor Merger

Issue Date: CSP Daily News, June 8, 2009,

Petro-Canada, Suncor Shareholders Approve Merger
Deal is subject to regulatory approvals, Competition Board review

CALGARY, Alberta -- At their respective annual meetings, Petro-Canada and Suncor Energy Inc. shareholders approved plans that will result in the merger of the two Canadian companies and certain of their subsidiaries: 96% of the Petro-Canada shareholders present voted for the merger; 98.07% of the Suncor shareholders at the meeting voted in favor of the merger.

The deal, first announced in March, is subject to all regulatory approvals and review by the Canadian Competition Bureau. The merged company will keep the Suncor name and will retain the Petro-Canada retail brand. (Click here for previous CSP Daily News coverage.)

"Shareholders recognized that the merger between Petro-Canada and Suncor would create Canada's premier integrated energy company with the assets, cost structure and financial strength to compete globally," said Ron Brenneman, Petro-Canada's president and CEO.

"This is a great vote of confidence from our shareholders," said Rick George, president and CEO of Suncor, who will assume the same role in the merged company. "Creating a made-in-Canada company that can compete on a global scale is good for shareholders and good for Canada. We anticipate that our two companies will be able to realize efficiencies and opportunities neither of us could have realized on our own. With an integrated business model we expect to have a global leadership position in the oil sands industry, a strong Canadian downstream brand, an attractive portfolio of domestic and international oil and natural gas assets, and numerous growth opportunities through the combined inventory of Suncor and Petro-Canada's potential development projects."

Click here for addition leadership changes.

At Petro-Canada, shareholders approved a new stock option plan by more than 52% of the votes cast, which will bring together the plans of Suncor and Petro-Canada and be used to attract and retain highly qualified directors, officers and employees. At Suncor, 57.67% of the votes cast were in favor of the new stock option plan.

Both companies elected 11 board members, including 10 independent directors until the earlier of either the completion of the merger or the next annual general meeting. These individuals are also proposed board members for the new merged company.

Petro-Canada also appointed Deloitte & Touche LLP as its auditors; Suncor appointed PricewaterhouseCoopers LLP.

Calgary, Alberta-based Petro-Canada is one of Canada's largest oil and gas companies, operating in both the upstream and the downstream sectors of the industry in Canada and internationally.

Suncor is an integrated energy company also headquartered in Calgary. Along with its upstream operations, it operates a refining and marketing business in Ontario with retail distribution under the Sunoco brand. U.S. downstream assets include pipeline and refining operations in Colorado and Wyoming and retail sales in the Denver area under the Phillips 66 brand. Suncor Energy (U.S.A.) Inc. is an authorized licensee of the Phillips 66 brand and marks in the state of Colorado. Sunoco in Canada is separate and unrelated to Sunoco in the United States, which is owned by Sunoco Inc., Philadelphia.

Bilibala's comments:
Once it got approved by the regulator, the merged company will become the largest intergated oil & gas company in Canada. To me, this deal is more in favour to Suncor than to Petro Canada. Both company stock price go up a lot after the annoucement of the merge. I will stay away from them until I review the 1st two merged financial statements.

Google searches mirror the economy

What consumers search for, and how they do it, tends to mirror their financial health. Advertisers are taking note.

By Beth Kowitt, reporter
June 8, 2009: 10:36 AM ET

NEW YORK (Fortune) -- When the stock market goes up these days, your 401(k) isn't the only thing that will follow. So, too, does the volume of Google searches for economic terms.

In fact, Google (GOOG, Fortune 500) has found that queries for terms like "investments" closely mirror the performance of the stock market. And if you're spending a lot of time shopping around for a new credit card, you're probably a credit-worthy consumer that any card issuer would be happy to serve.

Google says these insights, gleaned from a new study about the way U.S. consumers shop for financial services, suggest that the way we search -- not just the keywords we search -- say a lot about us.

"The broader issue and the broader trends that we're seeing are that the financial landscape is really, really complicated," says Jon Kaplan, Google's financial services industry director. "The complexity of the financial situation right now is causing people to search more, and we see that."
The queries aren't just a bellwether for the economy but also a barometer of public sentiment.

This tie between search and psyche has not been lost on advertisers, who believe they can market more effectively by capitalizing on this connection. Google has responded by scrutinizing the ways users search for products.

This intense focus on the psychology of search has emerged as sites like Google have become more integral to everything consumers do, says Shar VanBoskirk, an analyst with Forrester Research. "The search engine is supplanting content sites in many cases," she says. "People are starting any decision they make with a search."

Search terms. For online advertisers this means targeting ads to specific search terms is more important than ever. Google started hearing from financial companies that they were looking for the "right kind of customers." (Translation: Deadbeats need not apply.) These firms wanted to direct their ads to credit worthy people, says Kaplan. This prompted Google to look more closely at search funnels -- the path users take during the search process for a product.

Through research company Compete, Google undertook a study that examined the ways that a 2 million U.S. online consumer panel searched and shopped for credit cards between January and February 2009.

The research showed that people with high FICO scores, and thus the more credit worthy customers, shop around more but apply less frequently than lower FICO score searchers. Applications among high FICO shoppers increased significantly for those that searched at least 10 times.

"One of the high level themes that came out of this is that people with high FICO scores are spending a lot more time shopping than they used to," says Kaplan. "There's a much longer time to conversion or application."

Consumers with better credit searched specific terms such as brands and rewards and were more likely to shop directly on an issuer's site. People with lower FICO scores applied to several different cards, utilized the term "best credit cards" at a third of the rate of higher FICO shoppers, and were more likely to use aggregator sites.

Ad strategies. In response what some of Google's advertisers have done is select search terms such as specific brands or "travel rewards," says Kaplan. Even though the consumer's search might not immediately convert into a credit card application, the company's ad is more likely to appear to a high FICO score searcher.

While the results are obviously useful to advertisers, VanBoskirk with Forrester notes that consumers prefer to see ads that are more relevant to them. But targeting shouldn't give advertisers the license to overly bombard searchers, she says.

Along with changing how companies direct their ads, Kaplan says the results of the study might also change the way they reach out to potential customers. The sheer volume of queries from consumers indicates that they're looking to more than just apply for an account when they search. They're also looking for information.

"Maybe one of the things that credit card companies should consider is doing some more educational content and comparison on their site," he says. "I think we'll see some more of that coming out as advertisers adopt this."

Bilibala comments:
When there are searched, there are needs & wants. However, search in itself can't fulfil our needs & wants. So we keep searching & searching until we find fulfilment.

New Accounting Rules

Posted Jun 5th 2009 3:10PM by Connie Madon
Filed under: Earnings reports, Market matters, Financial Crisis

With a sleight of hand, the Financial Accounting Standards Board gave banks a way of hiding their losses, at least for the time being. What was this sleight of hand? With powerful lobbying by 16 industry association groups who call themselves the Fair Value Coalition, a proposal to use "mark to market" to price the value of distressed assets was killed. Congress, it seems, bowed to the lobbyists and complained that the existing "mark to market" standards worsened the financial crisis. So what is the new rule? Who knows? Its hard to figure out exactly what standard banks are using to price distressed assets.

Meanwhile banks have been showing nice profits over the past month. And we've seen glowing comments from bank executives telling us how their profit picture has improved.The problem is that they don't reflect the true financial condition of the banks. Martin Weiss of Weiss Research Inc. said: "the big banks' profit were actually bogus." Weiss goes on to say: "Citigroup's $1.6 billion in first quarter profit would vanish if accounting were more stringent." At Citigroup (NYSE: C), which received $346 billion in fresh capital and asset guarantees from the government, about 25% of its quarterly net income came from debt securities rule changes. At Wells Fargo & Co. (NYSE: WFC), the new standards boosted its capital by $2.8 billion dollars and augmented its income by $334 million. This won't last because Wells Fargo faces large loan losses from increasing home mortgage defaults.

According to Tavakoli, 40% of subprime mortgages are already 30 days or more overdue and defaults may go as high as 55%. So when will the banks' next time bomb explode? It could come in 2010 when regulators force banks to put distressed assets "on the books." So far banks are keeping billions and even trillions of dollars "off the books." Who knows what kind of losses are hidden among them. As we speak the lobbyists are marshaling their forces along with the Fair Value Coalition and are descending upon Congress to kill this new rule, just like they did "mark to market."

I don't know what's wrong with regulators or Congress that they don't see that unless banks put all of their "off the books" securities "on the books" that we will have another financial crisis. What is the greatest mystery of this century is why banks are not forced to do business like everyone else. They are the backbone of our economy. Sooner or later they will have to "bite the bullet" and let the chips fall where they may.

Do you believe that banks should put all of their "off the books" assets "on the books?"

Bilibala comments
I think there is a trade off between reliable and relevant.
Cost is more reliable while market value is more relevant & subjected to lots of unreliable, subjective & short sighted market movement.

By thinking using mark-to-market will provide the most reliable and relevant results, in itself, is stupid!! Only those financial analysts who don't know accounting will say that.
Unrealized gain / loss is not a loss, at least, it is not a realized loss. Current accounting rule and SOX requipment should be able to keep the corporation from hiding their loss.

Today, USA government change the rule to mark-to-model under circumstance is good. Not just because it will help the financial institution a relief to stop marking the assets further down. It also bring a balance between reliable and relevant, provide a more balance & more conservative balance sheet to shareholders, investors and to senior management team. So that they can have better decision making for future.

Econ data 09 week 23

Consumer market

• US 1Q productivity up +1.6% from +0.8% prior estimation, better than expect +1.2%
• US Apr factory orders up +0.7% from -1.9% in Mar, worse +0.9%
• US May ISM index up to 42.8 from 40.1 in Apr, same 42.3
• US Apr Personal spending down -0.1% from -0.3% in Mar, better -0.2%
• Consumer market looks good and more sight to stablize

House market

• US Apr pending home sales up +6.7% from +3.2% in Mar, better +0.5%
• US Apr construction spending up +0.8% from +0.4% in Mar, better -1.5%
• Find some pick up in here, more trend analysis need to be done

Job market

• US May unemployment rate up to 9.4% from 8.9% in Apr, worse 9.2%
• US May job pos down -345k from -504k in Apr, better -520k
• US 05/30 initial jobless claim down to 621k from 625k, same 620k
• US Apr personal income up +0.5% from -0.2% in Mar, better -0.2%
• CA May unemployment rate up to 8.4% from 8.0% in Apr
• Not that impressive to me, but it is in line with my expectation
• To explain why U rate up 0.5% while job pos down only 345k, I think it is because more ppl start looking for jobs while less laid off is happening.
• No matter what, with 9.4% unemployment rate, it will keep consumer off from spending
  

Reitmans Canada 10q1 results

Overview
Reitmans is a Canadian ladies' wear specialty apparel retailer. The Company has seven banners: Reitmans, Smart Set, RW & CO., Thyme Maternity, Penningtons, Addition Elle and Cassis. Each banner is focused on a particular niche in the retail marketplace. As of May 2, 09, Reitmans has a total of 974 stores across Canada.

1q10 Results (vs 1q09)
1. Revenue: 1q10 Sales up 1.5% to $231.7M

• As per MD&A, management believe sales down mainly due to weaken Canadian economy & the cut on consumer spending;
• During fiscal 2009, RET’s net opened stores are1 stores
• 1q10 same store sales down 0.8%
• 2q10 sales should improve as summer approaching

2. Earnings: 1q10 reported EPS down 58% to $0.11

• Gross margin dropped to 11.0% from 17.2% due to higher transportation cost and the rise in US dollar;
• Investment income down 67% to $727 due to interest rate drop;
• As US dollar fall significantly in 2q10, let's see how the gross margin will improve back to normal

3. Balance Sheet:

• Total equity sightly down 0.3% to $478.2M. Price to Book Value is 1.78 as of Jun 3, 09.
• Long term debt equity ratio is 0.02. That is RET’s strength for future growth & resist financial crisis;
• Cash & cash equivalents down 29.7% to $150M from 4q09, looks consistent to 1q09;

Risk

• Clothing & accessories stores sector is a highly competitive sector. RET’s products do not have an economic moat in terms of design, material and cutting. (They do have a wide moat in certain niche retail markets.)
• Canada economy go weaker as consumer spending and consumer confidence continue to go down and unemployment rate rise to 8.0%
• RET’s cost of good sales will remain high if US$ remain strong;

Bilibala with Reitmans

• n/a

Comments
Change from BUY to HOLD, fair value CA$14.8. It go up 61% to $13.05. I think there is better opportunity to BUY where else.

News on May 09 mutual fund sales

Mutual fund sales in Canada:

• Look strong and solid in May 09
• Industry asset under management (AUM) up around 4%
• $$ flow in to long term funds (LTF) from money market fund (MMF) start from Mar and continue in May
• + $1.8B inflow to LTF
• - $0.9B outflow from MMF
• % of AUM in MMF continue to go down from 14.2% in Mar, to 13.5% in Apr and to 12.9% in May;
• % of AUM in MMF hit the bottom during the period of late 06 and mid 07 to 8%;

Outlook:

• Total AUM (from top 25 industry players) as of May 09 is about $565B, so MMF as of May 09 is about $72B;
• Assume 12 months market return on LTF & MMF are 8% & 1%;
• Assume 12 months' net sales on LTF excluded fund switch from MMF is 2%
• Assume % AUM on MMF will go down to 10% from 12.9% in 1 year
• Based on the above assumption, the switch from MMF to LTF in the coming 12 months will be around $11.2B. Plus LTF inflow excl MMF switch, the inflow to LTF will be around $21B
• This additional $21B should be able to push the equity market to a higher point or at least make it more stable compare to the past 6 months

Top 10 industry players in Canada (estimated AUM as of May 31, 09) per IFIC:

1. RBC $101B
2. IGM $89B
3. CI $54.9B
4. TD $49.2B
5. CIBC $42.2B
6. Fidelity $37.8B
7. BMO $31.2B
8. Trimark $27.7B
9. AGF $20.9B
10. Dynamic $19.6B

All these top players, especially the bank should be benefit from this switching trend and their fee incomes should be improved from bottom low.

Berkshire Hathaway 1q09 result

Berkshire Hathaway is a holding company that owns more than 70 business mainly in insurance, energy. It also has a $49B equity portfolio which owns large equity stakes in Coca-Cola, Wells Fargo, Proctor & Gamble and America Express etc.

1q09 results:

1. Total Reveune down 9.5% to $22.8B vs 1q08

• Exclude $5.0B & $1.5B investment & derivative losses in 09 & 08, reveune up 4.5% to;
• Exclude $1.8B retroactive reinsurance deal with Swiss Re in 09, reveune down 2.3%;
• As Buffett said, Berkshire is not immune from the financial crisis, but the reduction is reasonable or i should say better than peers and better than the overall consumer market;

2. 1q09 reported EPS (class B) -$33 loss from $20 profit;

• Exclude $3.2B investment & derivitve losses (after tax), net income down 11.7% to $1.7B
• Insurance underwriting profit up 21% to $219M. That's amazing, given most of its reinsurance peers are suffer with huge loss
• Unilities and energy profit down 36% to $203M mainly due to gas price down significantly in between 1q08 to 1q09

3. Balance Sheet

• Book value down 6.0% to $2,212 from 4q08, better than my expectation;
• Price / book as of Jun 1, 09 is 1.35. Altought it rise a lot from the "bottom", it still lower than company's historical average of about 1.8;
• Cash balance is similar to 4q08 at $25.6B;
• Net cash flow from opeartion remain strong at $4.6B or up 38.4% from 1q08;

Risk:

• Aging / retirement concerns for BRK's management team;
• Credit rating may fall derivative value / its equity holding continue to fall;
• Cost of capital may rise derivative value / its equity holding continue to fall;
• The conglomerate's nature makes it difficult and unclear to estimate the company's performance

Forecast 09
Based on 2009 equity market performance so far as of May 31 09, the equity market has been recovered a bit, so Berkshire should have profit in 2009.
Special deal should help to generate addition $1.7-$2.0B investment income per year start from 2009

Bilibala & Berkshire

• In Summer, i like to have ice cream at the Dairy Queen next to my office;
• Wirley Gum (Excel) wake me up whenever I feel sleepy during meeting;
• Bilibala is a value investor and follow Warren Buffett's investment way;

Comments:

BUY, adjust Fair Value to $4,866 from $4,640

Berkshire's stock buy & sell:

• Buy Burlington Northern, Johnson & Johnson, Wells Fargo, Union Pacific, US Bank Corp......
• Sell Conoco Phillips, Costellation Energy.....