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Hutchison Whampoa's 49 per cent-owned Husky Oil is to merge with Toronto-listed Renaissance Energy in a transaction expected to generate HK$6.5 billion in exceptional profit for the Hong Kong company.

The US$3.02 billion merger will create Canada's second-largest oil company, Husky Energy.

The merged company, with market capitalisation of C$7.2 billion (about HK$38.26 billion), will be listed on the Toronto Stock Exchange.

Under the agreement announced yesterday, Calgary-based Husky Oil shareholders will receive a combined 65 per cent holding in Husky Energy, or 278.8 million shares out of the total 429 million shares.

Li Ka-shing and Hutchison Whampoa each hold 49 per cent of Husky, while Canadian Imperial Bank of Commerce (CIBC) owns the remainder.

Shareholders of Renaissance, also based in Calgary, are to own 35 per cent of Husky Energy.

Husky Oil will then purchase Renaissance Energy in a combination of cash and cash plus share options.

Renaissance shareholders can choose to receive C$18 cash for each share for a maximum of 27.8 million shares. They can also choose to receive one new Husky Energy share and C$2.50 cash for each share held. This option values Renaissance shares at C$19.50 each.

The purchase price would represent an 8.4 per cent premium to Renaissance's closing price on Friday for the cash option, and 17.5 per cent premium for the cash and share option.

Hutchison Whampoa will end up with 35 per cent of Husky Energy, assuming Renaissance shareholders opt for maximum cash payment.

Otherwise, Hutchison will hold 31.8 per cent.

The Hong Kong company expects to reap HK$6.5 billion from the sale of Husky Oil, its third-largest exceptional profit in the past three quarters after the disposal of Britain-based Orange and Germany-based Mannesmann shares.

The stake of Mr Li, chairman of Hutchison, would be roughly the same as the Hong Kong company's, a Hutchison spokesman said. Mr Li's returns from the transaction were not disclosed.

CIBC would have about 1.3 per cent stake in Husky Oil.

'This is an excellent deal for Hutchison and Mr Li,' an analyst said.

'It is effectively a back-door listing for Husky Oil.' He noted that Hutchison had fixed a value to an asset which was somewhat unrelated to its core business.

Hutchison first bought into troubled Husky Oil in 1987. In 1991 and 1992, it made provisions of about HK$2.2 billion to cover its investment in the loss-sustaining oil company.

Husky contributed HK$761 million last year.

Based on a 15 times forward-earnings ratio, Husky Energy would have a pro forma market capitalisation of C$7.2 billion and C$3.3 billion of debt.

The merged company is expected to generate more than C$485 million in profit this year on revenue of C$5 billion.

The merger is expected to be completed soon after a Renaissance shareholders' meeting in August.



Husky $6.5b windfall in Hutchison Whampoa deal