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Financial savvy brings off coup in buying Gulf

The cagey bargaining that prevails in Middle East bazaars has nothing on the Reichmann brothers. In their first bid to buy 60 percent of Gulf Canada from Chevron Canada in July, the Toronto-based financiers walked away from a $25 million (Canadian) deposit.

Bay Street -- Canada's version of Wall Street -- was in awe. Few businessmem can afford to walk away from $25 million. ``Don't worry,'' said a Toronto financier at the time, ``the Reichmanns know what they're doing.''

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They certainly did. By the time negotiations were over this month, Olympia & York -- owned by the Reichmanns -- had bought the Gulf Canada assets from Chevron. But the price was $2.8 billion, not the original $3.1 billion the Reichmanns had walked away from.

All of a sudden the $25 million lost deposit looked like loose change.

Since buying Gulf Canada control, the Reichmanns have quickly disposed of assets they are not interested in, such as gas stations.

This week the federal government -- through the state-owned oil company Petro-Canada -- became the largest gas station owner in Canada. All of this courtesy of the Reichmann brothers. Gulf Canada sold Petro-Canada 1,800 service stations and four refineries in Ontario and western Canada for $886 million.

That sale is part of the Reichmanns' strategy to get rid of the pieces of Gulf they don't want. It leaves assets such as oil and gas in Alberta, the Beaufort Sea, and other frontier areas along with Gulf's share of the Alberta oil sands.

The deal also produces cash to offset the $2.8 billion purchase price of Gulf Canada. The Reichmanns had already raised $300 million in a deal with Toronto financier Conrad Black, and they still have a refinery in Montreal and 675 gas stations in Quebec and the Maritime Provinces to sell. Those are estimated to be worth at least $200 million.

Petro-Canada will have 4,285 gas stations in Canada when the deal goes through on Sept. 30. The state-owned company will pass Imperial Oil, about two-thirds owned by Exxon of New York, as the No. 1 gas station operator in the country.

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This is a bit embarrassing for the Conservative government in Ottawa. A year ago when it was in opposition, it criticized the Liberals for supporting Petro-Canada. The Conservatives promised to sell it. But instead it has grown and now its public image -- with the red maple leaf at the gas pumps -- will be even greater.

There has been criticism of the Petro-Canada expansion in western Canada.

``Consumers will pay much more for petroleum products because of the increased concentration and less competition,'' said Jim Conrad of the Petroleum Marketers Association of Canada.

Selling Petro-Canada could be one way for Ottawa to get around the predicament of a free-enterprise government owning an oil company.

But back to the Reichmanns. Where did they get the money to do this deal in the first place? Well, they got a lot of it in New York.

The Reichmann family came to Canada 30 years ago after first fleeing Nazi persecution in Europe and then a change of regime in Morocco. They started a tile and import business in Toronto. They expanded into real estate and amassed a sizable fortune.

New York provided their biggest opportunity. When there was concern about the city's going bankrupt in the mid-70s, the Reichmanns, through Olympia & York, bought eight prime-site New York skyscrapers in 1977 for $390 billion. The buildings are now said to be worth at least $2 billion.

Olympia & York owns 100 skyscrapers around the world. It also owns 91 percent of Abitibi-Price, the world's largest newsprint producer, and pieces of other major Canadian companies, including Macmillan Bloedel -- forest products, Bow Valley Industries, oil and gas, and Hiram Walker Resources; also oil and gas.

The Reichmann brothers, Paul, Albert and Ralph, live modestly in Toronto. They are strict Orthodox Jews and neither they nor any of their companies will conduct business on the Sabbath.

Their recent acquisitions have left them one of the largest -- if not the largest -- owners of natural resources in Canada.

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