On the face of it, it should be relatively simple for ConocoPhillips to dump its 9-per-cent stake in the Syncrude oil sands project.
The U.S. energy company is a motivated seller - management has promised to shed $10-billion in assets - and across the table sits an obvious buyer.
Canadian Oil Sands Trust is the single largest Syncrude stakeholder, with a 37-per-cent stake, and chief executive officer Marcel Coutu clearly stated recently that the trust wants to consolidate ownership. His exact words: "We'll continue to look outside Syncrude, but our greater interest would be over the fullness of time to consolidate our own partners - when they decide for their own strategic reasons to get out of Syncrude."
None of the other Syncrude partners - Imperial Oil, Suncor, Nexen, Mocal Energy and Murphy Oil - are expected to bid for ConocoPhillips' stake. Based on current prices for Canadian Oil Sands units, the ConocoPhillips position is worth $3.6-billion.
The project, while attractive from a cash flow point of view, is controlled by Imperial Oil and is relatively mature. The upside for large energy companies is spending capital on new reserves. Energy trusts, on the other hand, focus on milking properties that are fully explored.
However, advisers in Calgary who are familiar with the politics of Syncrude's ownership group predict sealing this deal will be difficult, as both sides go in thinking they have the upper hand.
"Sometimes the toughest deals are ones where you only have one buyer and one seller. Each side tries to exploit its perceived leverage," said one investment banker who works with Canadian Oil Sands and the other Syncrude partners.
Canadian Oil Sands has the financial strength needed to buy the ConocoPhillips stake, though it would likely issue an oil-sands-style dump truck load of new units to fund the purchases, with a sale of 100 million units worth $3-billion potentially in the cards. In a report yesterday, RBC Dominion Securities said: "In [our] mind, the planned sale of ConocoPhillips' 9-per-cent interest in Syncrude is Canadian Oil Sands' to lose, with the transaction supporting 3 per cent to 4 per cent cash flow per unit accretion."
Canadian Oil Sands released its financial results earlier this week, reporting cash flow per unit of 61 cents in the third quarter. The trust raised its quarterly distribution by 40 per cent this week to 35 cents a unit from 25 cents.
TransAlta bought deal
The investment banks are finishing their fiscal year with a bang, rolling out a $375-million bought deal for utility TransAlta.
The Calgary-based company sold stock at $20.10 a share late Wednesday, a relatively thin 2-per-cent discount to where the stock closed on the Toronto Stock Exchange. This offering will be targeted at the same income-seeking investors that have snapped up numerous recent financings from utilities and financial plays.
RBC Dominion Securities, CIBC World Markets and Scotia Capital led the transaction. The dealers have an Oct. 31 year-end.
TransAlta will use this money to repay a portion of the debt it took on to acquire Canadian Hydro Developers. TransAlta said all along that it planned to sell equity to pay for part of this purchase. So the bought deal may help the stock price, by removing the overhang that a pending financing represented.
Empire Life recruits
There's a new money management team calling the shots at Empire Life Insurance and its $7.1-billion portfolio. The insurer, part of E-L Financial Corp., lured Gaelen Morphet away from CIBC and named her as the new chief investment officer on Monday. She will be based in Toronto, but join the Kingston, Ont.-based insurer's executive team. She starts at Empire Life on Nov. 9.
In addition, two of Ms. Morphet's colleagues from CIBC's mutual fund arm will join Empire Life. Lieh Wang will step up as a senior portfolio manager and Nessim Mansoor joins as a portfolio manager.
BMO lures talent
Canadian banks continue to benefit from the exodus of talent from Wall Street dealers, as the U.S. investment dealer arm of Bank of Montreal hired a Merrill Lynch veteran to head a key team on its U.S. stock-trading desk.
William (Bill) Bertsch spent the past 19 years on the desk at Merrill Lynch, focused on trading energy stocks, along with industrials, utilities and financials plays.
At BMO, Mr. Bertsch will continue to focus on the energy sector, and will also head up what's known as the "facilitation team" in New York.
These are traders authorized to use the investment bank's capital to help clients buy and sell stocks. The past year has seen many dealers pull back on facilitation trading, as part of a larger move to commit less capital to markets. So equity desks that continue to take on liabilities to help clients make trades can win a larger share of institutional stock-trading commissions.
The two Canadian banks with substantial New York capital markets operations - Bank of Montreal and Royal Bank of Canada - have hired a number of Wall Street veterans since the downturn began last year. RBC boasts of adding more than 300 professionals over the past year. There has been a steady stream of departures from Merrill Lynch in the wake of its controversial purchase by Bank of America.
The U.S. BMO unit also beefed up its electronic trading team in Manhattan, hiring a veteran of the rival RBC dealer. It welcomed Sean Mackenzie as the new head of program and electronic trading in New York. Until recently, Mr. Mackenzie played a similar role on the RBC equity desk.
Electronic trading now accounts for the majority of traffic on U.S. exchanges, and Canadian markets are seeing strong growth in this area, with more than 20 per cent of buying and selling coming from computer-assisted trading supported by increasingly sophisticated algorithms.
See Andrew Willis's Streetwise Blog at ReportonBusiness.com
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