Post by
Obscure1 on Aug 24, 2021 7:00pm
SU: A takeover candidate?
It's nice to see the share price of SU up for the past 2 days after the shellacking the shares took in the past month. However, it still looks like like the SU share price is pushing uphill as the share price came down with the price of oil a lot faster than it is recovering as the oil price improves.
SU generated $2.36 billion of cash from operations in Q2 despite significant maintenance work. A billion dollars per month going forward is not out of the question if oil prices remain in the US$70 to US$80 range as they continue to rationalize and cut costs.
If you read the headlines, you would think that nobody in the world would touch a company like Suncor as tarsands and oil in general are a pariah in the market. If you believe the headlines, you would be wrong.
While a significant percentage of institional funds will have to get out of oil, there will always be investots that just want to make money.
It wouldn't surprise me at all if somebody takes a swing at Suncor. SU has to look incredibly juicy to the number crunchers as they see a company generating $12 billion per year of FCF and trading under $24 per share.
Buffet loves cash flow. Brookfield loves cash flow. Every fund with deep pockets loves cash flow as the math gets really simple for them. If a giant wanted to scoop up SU, it would be pretty easy to do in this market.
How difficult would it be for Brookfield to swoop in a take a big position in SU? Once Brookfield picked up a minority interest, it could put in an offer that many funds would jump at. Brookfield would simply have to reach out to the institutions and say "we are going to create a Suncor Renewables subsidiary and if you vote with us, here is how it is going to work out for you". The simple promise to institutions of being able to convert their shares for shares in a Renewable sub would likely get the job done in a heartbeat.
It is not like SU's mgmt could play any loyalty cards with institutions in a proxy fight as mgmt has not exactly been making friends with the street. Fund managers are looking for an exit from SU and a swap for a proposed Renewable sub would likely receive a lot of traction. The math would be ridiculous for Brookfield as they could seed the Renewable and get the institutional shareholders of Su to swap shares in a cash flow monster for the new "publicly acceptable" enterprise.
I haven't heard or read anything about a SU takeover, but if I was a young buck working at 181 Bay St., I would be putting together a proposal. Heading up a takeover of SU would be a career maker. This type of maneuver would fit right into Brookfield's and its predecessor's play book.
I hope I haven't skipped too many steps to prevent you from joining the dots.
Comment by
Spanito on Aug 24, 2021 7:17pm
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Comment by
Experienced on Aug 24, 2021 7:38pm
While I don't think that a takeover of SU is likely. At current interest rates the math is certainly compelling for a company like Brookfield. When you combine this with ownership of IPL and its ability to take oil from the oil sands to Asian markets, it does make for an interesting scenario.