Suncor's Canadian Oil Sands Bid May Spark Rival Offers

  • Imperial is a likely rival bidder, according to CIBC
  • Stock price surge signals investors expect other offers

Suncor Energy Inc.’s C$4.3 billion ($3.3 billion) unsolicited offer for Canadian Oil Sands Ltd. is likely to spark a bidding war after the slumping price of crude depressed the target company’s shares, making a takeover more attractive.

Imperial Oil Ltd., the Exxon Mobil Corp.-controlled producer that operates and owns a 25 percent stake in the Syncrude venture with Canadian Oil Sands and Suncor, is a possible buyer, according to CIBC analyst Arthur Grayfer. Suncor’s bid is not a “knockout,” he said.

Canadian Oil Sands is the biggest shareholder of Syncrude, which is owned by seven oil producers. Its shares surged as much as 58 percent in Toronto to trade above the offer price, which signals investors expect a rival bid, said Martin Pelletier, managing director and portfolio manager at TriVest Wealth Counsel in Calgary.

“If oil prices go back to $60 there’s plenty of room for that,” said Pelletier, who bought Canadian Oil Sands shares recently betting on a takeover and is in the money on the stock’s gain. “Everything’s on the table when you do a hostile like this. Canadian Oil Sands is going to look at everything.”

Suncor’s offer would boost its share in Syncrude to 49 percent, giving Canada’s largest oil producer almost double the stake of the next-biggest holder, Imperial. The venture turns bitumen from the Athabasca oil sands in northern Alberta into light synthetic crude. With 350,000 barrels a day of capacity, Syncrude is the largest single-source producer in Canada.

Rejection Expected

Canadian Oil Sands is expected to reject the offer, according to a person familiar with the Calgary-based company’s thinking who asked not to be identified because the matter is private.

Canadian Oil Sands said Monday that it’s reviewing Suncor’s latest offer with its advisers and will make a recommendation to shareholders as soon as possible. Advisers previously retained by the company will assist it now, including Royal Bank of Canada, Osler, Hoskin & Harcourt LLP and Kingsdale Shareholder Services, according to a statement from the company.

Doug Warwick, a managing director at TD Asset Management, Canadian Oil Sands’ biggest shareholder with almost 5 percent, said in an interview that he thinks the Suncor offer is “a little light” and will consult with the company’s management and advisers.

Turned Down

Previous approaches by Suncor in March and April were turned down by the company and the board, Steve Williams, Suncor’s president and chief executive officer, said on a conference call Monday. Suncor decided to set aside the takeover plan until oil prices collapsed several months later, he said. The deal requires the support of two-thirds of Canadian Oil Sands’s shareholders.

Imperial spokesman Pius Rolheiser said the company doesn’t comment on rumors or speculation and referred questions about the Canadian Oil Sands offer to Suncor.

Stock Rally

Canadian Oil Sands shares jumped 55 percent on Monday to C$9.60 at the close in Toronto, above the C$8.84 offer price, based on Suncor’s closing price on Friday. Suncor fell 2.2 percent to C$34.60.

Before Monday’s price surge, Canadian Oil Sands had plunged along with oil prices. It has cut its payout to investors several times in recent years. The former income trust, a class of securities that paid high dividends until their tax advantage was removed by the Canadian government, pays a dividend of 5 cents a share, from as high as C$1.25 a share in 2008. The stock had dropped 41 percent this year through Friday, compared with a decline of 4.2 percent for Suncor.

Canadian Oil Sands and its partners have also struggled with operational setbacks at Syncrude including a fire last month that happened in the piping between the hydro-treating and environmental units at the Mildred Lake upgrader.

‘Logical Candidate’

Imperial is the “most logical candidate” to make a competing offer, said BMO Capital Markets analyst Randy Ollenberger, though that is “unlikely” because Suncor has a better chance of being able to lower costs because it has nearby operations.

If the deal goes ahead, Suncor’s Williams expects Syncrude ownership to remain stable, he said Monday in an interview. “Syncrude has always been, if you look over history, where stakes have been bought and sold. I think if anything it makes it more stable,” he said.

Suncor management has had “very limited” conversations with the other owners, Williams said. “We are going through a process as a matter of courtesy of talking to all of the partners in Syncrude today, and I did take the opportunity to speak to Imperial earlier this morning,” he said. “Clearly both Imperial and Suncor understand the asset well through their own ownership of it.”

Suncor owns and operates the Millennium mine near Syncrude’s operations. Syncrude, which began operations in 1978, is the largest mine in the world by area.

Suncor produced 423,800 barrels a day from its oil sands operations in the second quarter, which will increase by 180,000 barrels within 12 months of the start-up of its Fort Hills mine in 2017. Syncrude’s daily output was 343,000 in June.

The other Syncrude owners are Murphy Oil Corp., Sinopec Group, Japan’s Mocal Energy Ltd. and Cnooc Ltd. through its Canadian subsidiary Nexen Energy.

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