By: CARL O. NICKLE, Publisher of the Daily Oil Bulletin & Oil In Canada
"If there is any change in control of CANADIAN OIL COMPANIES, LIMITED, it will be over my dead body". That, a few months ago, was the flat and heartfelt comment of an old friend, W. HAROLD REA, when we called him long distance from Calgary at Toronto concerning rumors that the ROYAL DUTCH SHELL GROUP was contemplating absorption of Canada's largest Canadianowned integrated oil company. No approach had been made to his company, said Harold.
No approach was made, until Saturday, July 21st. On that evening a top flight Shell delegation visited Harold Rea, told him of their company's interest, outlined a specific plan for an offering to shareholders of the independent (at a share price well above market), and stated the offer would be released to the public within hours. The Shell press release was made before even all Canadian Oil Board members could be contacted.
Thus began a battle being waged bitterly behind the scenes, and fairly politely in public view, between the Canadian unit of an oil giant and the management and larger shareholders of the big Canadian independent. Pitted against each other are two old friends. both highly regarded veterans in the Canadian industry W. M. VACY ASH, head of SHELL OIL COMPANY OF CANADA LTD and Harold Rea, 30 year employee of Canadian Oil and for the past 13 years its president.
A key to the ultimate outcome of the battle is the POWER CORPORATION OF CANADA, a king-sized Canadian holding company that owns about thirty percent of the common shares of Canadian Oil Companies. Judging from public statements by Power's president PETER THOMPSON the Shell offer also came as a surprise to the leading shareholder. Power was forced by British Columbia provincial government action some months ago to take cash in exchange for its expropriated stake in B. C. Electric, and is faced with a threat of expropriation by the Quebec provincial government of its stake in Shawinigan Water & Power Company. Now comes a 'cash for shares' bid from big private enterprise for its stake in Canadian Oil Companies.
At this stage, Power Corporation officials appear opposed to the Shell offer which would yield about $39 per share for stock which was as low as $25 in recent months, and has now moved up to around $36. Power acquired working control of C. O. C. nearly quarter of a century ago from National Refining, a U. S. corporation, when Power's John Irwin spearheaded a Canadian group in the acquisition. Irwin and his associates Had shortly before lost their control of McColl-Frontenac Oil Company (now Texaco Canada) to The Texas Company, and were determined to take over and build up another major participant in Canada's oil industry.
In the years since, Harold Rea and his associates have built Canadian Oil Companies up from a relatively small marketer into a large integrated company, with very substantial exploration and producing interests in Western Canada, refinery complexes in Ontario and Alberta and marketing operations from the Rocky Mountains to the Atlantic. In the past ten years (1952-61), C. O. C. has boosted total assets from $60 to $128 millions, annul sales from $49 to $92 Millions, the equity of common shareholders from $10 to $57 Millions, the net earnings from $1 ¼ to $5 Millions yearly, and its annual payments in income taxes from $1 ¼ to $4 ½ Millions.
C. O. C. has built up its Canadian image, with such slogans as "Canadian all the way" and "Over 93% owned in Canada. The pride of Harold Rea and over 1,800 other employees, and the pride of over 12,400 shareholders is reflected in such comments as these, quoted from the company's 1961 Annual Report:
"The stability, and ability, of the planning of Canadian Oil Companies, Limited is quite evident in an examination of the Company's uninterrupted and profitable dividend record 144 consecutive quarterly dividends on the common stock have been disbursed over the past 36 years. On the preferred stock, dividends have been paid with out fail for 52 years."
"Because the Company is owned by Canadians and operated by Canadians for the purpose of manufacturing superior Canadian products to serve Canadians, the past and future growth of the Company means that Canada and all Canadians, as an economic and human entity, must benefit, too. Viewed in this light, the Company has every incentive, and the responsibility, to continue to grow."
Since the Shell offer was announced, "Let's keep Canadian Oil Canadian" has become something of a rallying call among shareholders and employees of the company. Whether or not this instinct of patriotism will win over the prospect of capital gain remains to be seen. But, certainly, for such men as Harold Rea the battle will be one where the principle of "Canadianism" will fly high with success, or be buried with him to mark the end of his C. O. C. career.
For some shareholders, certainly, the issues are far less clear. No one ever went broke taking a profit, some will say, and besides the physical assets of C. O. C. will still remain in Canada. Control of the corporate destiny would merely shift from Toronto, to London, The Hague and New York these being the headquarters of the corporate entities parent to Shell Oil of Canada.
Some shareholders probably including the biggest one have concluded that the Shell offering price (a total of $114 Millions) isn't good enough. They calculate that present worth may be somewhere between $150 and $200 Millions. Some certainly expect that reluctance on their part now will bring a higher offer from Shell.
Some reckon that at least one other international giant, the British Petroleum's Group, is deeply interested in acquisition of C. O. C. to bolster the refining and marketing setup it has been building in Eastern Canada, in recent years, and its oil and gas development in Western Canada. It is rumoured that Shell's fast Saturday move on July 21st was triggered by its expectation that B P or some other outfit would get in a bid first.
At this stage, it appears that there will be no hasty decisions made by the shareholders of Canadian Oil. Harold Rea and his able crew will fight to keep control of the company in Canada. A lot of shareholders will decline the present offer from Shell, in expectation of a better proposal from Shell, B P or someone else. In any case, the fast move by Shell last July 21st will not bring a stampede of acceptances.
From the viewpoint of the Shell Group, acquisition of Canadian oil Companies would be a sound investment, and also one that would hasten the long efforts by such men as Vacy Ash to "Canadianize" Shell Oil of Canada. The Canadian corporation is now 50% owned by Shell Oil Company, the big United States subsidiary; and 50% by Canadian Shell Ltd. an investment corporation which owns 65% of the Shell Oil Company in the U. S. and in turn is owned 60% by Royal Dutch Petroleum Co. of The Hague, and 40% by "Shell" Transport and Trading Company Ltd. of London. Royal Dutch and Shell Transport are the Dutch and British parents of the worldwide Shell Group corporations.
Shell Oil Company of Canada has for many years been a refiner and marketer in Eastern Canada, and in more recent years has expanded its activities into the West. The C. O. C. refining and marketing complex would fill up major gaps in the Shell operation. Shell of Canada has also for many years played a major role in Western Canadian oil and gas exploration and development, with its vast expenditures in these fields far more than absorbing the earnings from refining and marketing within Canada. It is understood that the company has, because of exploration, totted up substantial losses. each year. Unofficial estimate of 1961 loss for Shell of Canada is about $11 Millions, contrasted with the pretax profit of some $9.5 Millions earned by Canadian Oil Companies Limited.
Putting the two together would have very obvious immediate corporate benefits, making more earnings available for development and deferring tax payments to government. Perhaps more important, it would create an enlarged Shell of Canada 'package' which would be far more attractive to Canadian investors, and would thus facilitate one of Vacy Ash's longterm dreams of large though minority Canadian public participation in tie Canadian unit of Royal Dutch Shell. This would be started off by a distribution of Shell Oil of Canada shares to its own shareholders (35% held by the public) by Shell Oil Company, the U. S. firm. A number of Canadians now have shares in the American firm, and thus an indirect stake in the Canadian operation. In time, Shell Oil of Canada would supplement internal financing by an issue of more treasury shares to the Canadian public.
Thus as such proCanadian Shell men as Vacy Ash see it, the merging of Canadian Oil and Shell of Canada would open the door to ultimate widespread investment by Canadians in the shares of the enlarged Canuck corporation: ending what has been their serious concern for quite some years the necessity to invest in foreign parent corporations in order for Canadians to have even an indirect stake in the future of Shell Oil in Canada.
On the other side are men like Harold Rea, who have built up a healthy Canadian independent reaching from wellhead to consumer, during years when an increasing percentage of the nation's market has shifted into the control of the world's oil giants. They have a pride of accomplishment. They have a healthy corporation that does not need an international parent to continue its growth. They are part of Canada's largest Canadian owned integrated oil firm. They want to keep it that way.
The ultimate decision, so far as C. O. C. is concerned, lies with the company's shareholders. Their judgement will come in time and to help them make it, able men like Rea and Ash will pursue their dreams, state their cases, bargain hard, wielding as weapons both emotions and economics. Whose Waterloo it will be, we'll not hazard a guess.