Friday, November 02, 2007

Income Trusts; Predatory Capitalism

Predatory capitalism comes to the oil patch through this Income Trust merger. Another consequence of the Harpocrites Halloween surprise last year. And clearly farmer Ed's Royalty compromise has not impacted these guys.
Merger creates oil patch giant
Canada's newest energy powerhouse, forged yesterday by the proposed merger of Penn West Energy Trust and Canetic Resources Trust, is poised to challenge the oil patch's biggest players as it seeks even more aggressive expansion through acquisitions and new projects.

The new entity will be comfortably the country's largest oil and gas trust, with market value of around $15-billion and production of more than 200,000 barrels of oil equivalent a day. It will have the size to compete with some of the oil patch's biggest names, said executives of both companies.

The new company will not only be a leader in Canadian conventional light oil production, but its larger size will make it easier to access debt markets to fund significant developments in unconventional gas, enhanced oil recovery and even Alberta's oil sands, a region in which major projects have been the preserve of only the largest and most well-financed firms.

In addition, the company - which will operate under the Penn West banner for now, but may be rebranded in the future - is now buttressed against any potential foreign takeover and positioned to expand aggressively by taking over other trusts in Canada as well as assets in the U.S., said Penn West chief executive officer Bill Andrew. Last year's federal decision to make income trusts pay corporate tax from 2011 is perceived as having left such firms as more susceptible to domestic or foreign buyouts.

The friendly $3.6-billion cash and paper deal, which came together in a series of confidential meetings held in motels outside of Calgary over a three-week period, was facilitated in part by Calgary-based lawyer John Brussa, one of the original architects of Canada's income tax structure.

Income Trusts generate vast pools of capital which they can use to buy up other companies while retaining their ability to pay out dividends to coupon cutters.Income Trusts began in the oil patch in Alberta before becoming popular across Canada.

They are a product of the Alberta stock exchange lack of regulation and the Klein governments deregulation revolution. They avoid paying taxes thus allowing for higher returns to investors. They are a tax avoidance scheme for owners. And they still will generate value for their owners despite Flaherty's tax scheme which only comes into effect in 2011.

That will impact the coupon cutters far more than the companies real owners, the Class A shareholders and company investment managers. And by then the majority of Flaherty's corporate tax cuts will be in place enabling this trust to transform itself into a corporation again if it is a fiscal advantage.

In practical life we find not only competition, monopoly and the antagonism between them, but also the synthesis of the two, which is not a formula, but a movement. Monopoly produces competition, competition produces monopoly. Monopolists are made from competition; competitors become monopolists. If the monopolists restrict their mutual competition by means of partial associations, competition increases among the workers; and the more the mass of the proletarians grows as against the monopolists of one nation, the more desperate competition becomes between the monopolists of different nations. The synthesis is of such a character that monopoly can only maintain itself by continually entering into the struggle of competition.

Karl Marx
The Poverty of Philosophy
Chapter Two: The Metaphysics of Political Economy

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