Suncor Courts Shareholders as Canadian Oil Sands Nixes Bid

  • Offer by Suncor not 'permitted' under new rights plan
  • Suncor working to win over shareholders in several meetings

Suncor Energy Inc.’s belief that Canadian Oil Sands Ltd. would reject a C$4.3 billion ($3.3 billion) hostile takeover was borne out Wednesday.

Canadian Oil Sands announced a new shareholder rights plan, which calls for 120 days to consider bids. "Because Suncor’s offer is open for acceptance only until December 4, 2015 (unless extended or withdrawn by Suncor), it would not be a Permitted Bid under the New Rights Plan," according to a Canadian Oil Sands statement.

"We’re disappointed but not surprised by COS board’s decision," Chief Executive Officer Steve Williams said in an e-mailed statement. "This inappropriate defensive tactic limits the ability of COS shareholders to decide."

Because Suncor expected the offer to be rejected, it’s striving to convince shareholders of the merits of the deal, Williams said Tuesday in an interview at Bloomberg headquarters in New York. Asked if Suncor plans to raise the bid made Monday, he said, “No, I think one of our strategies is that we have made a full and fair offer.”

Seizing Opportunity

Suncor, Canada’s largest crude producer, is taking advantage of a prolonged oil rout to renew its effort to take over the biggest shareholder of the Syncrude venture in northern Alberta after two friendly offers were turned down earlier this year. Shares of Canadian Oil Sands surged as much as 58 percent in Toronto on Monday to trade above the offer price. Suncor would need support from at least two-thirds of the shareholders.

Doubling the length of time for considering bids to 120 days would "give other potential bidders a chance to make better offers," Gregory Elders and Michael Kay, analysts with Bloomberg Intelligence, said in a research note.

Suncor will probably end up acquiring Canadian Oil Sands in spite of the target company adopting a so-called poison pill, said Rafi Tahmazian, a fund manager at Canoe Financial LP in Calgary who owns Canadian Oil Sands stock. Other potential buyers aren’t likely to be able to pay as much as Suncor and any dissenting Canadian Oil Sands shareholders probably won’t be able to block the purchase, because the stock is widely held, he said.

“It’s a situation where the company’s in play whether they like it or not,” Tahmazian said in a phone interview Wednesday. “It’s a deal that makes sense.”

Rights Plan

The Toronto Stock Exchange will defer consideration of acceptance of Canadian Oil Sands’ new shareholder rights plan until the exchange "is satisfied the appropriate securities commission won’t intervene," a stance based on government policy tied to defensive tactics in takeover bids, the company said in a separate statement Wednesday.

The price of 0.25 Suncor shares for each in Canadian Oil Sands was “a little light,” according to another shareholder, one of the target company’s largest.

“I hate owning a company that’s very levered to a commodity that goes all the way down, and then gets taken out at the bottom so I don’t get the ride back up,” Doug Warwick, managing director of TD Asset Management, which owns almost 5 percent of Canadian Oil Sands through its mutual funds, said on Tuesday. Warwick said he’s consulting with advisers as well as Canadian Oil Sands management before deciding whether to sell to Suncor.

Shareholder Meeting

Suncor is meeting with shareholders from San Francisco to Boston to Toronto to seek to win them over, Williams said Tuesday.

Shares of Canadian Oil Sands surged as much as 58 percent in Toronto on Monday, the day the bid was announced, before paring the price surge the next day. The stock rose 2.9 percent to C$9.55 Wednesday. Suncor’s shares were up 1.7 percent to C$35.45.

Suncor’s offer would boost its share in Syncrude to 49 percent, giving it almost twice the stake of the next-biggest holder, Imperial Oil Ltd., which is majority-owned by Exxon Mobil Corp. With the capacity to process bitumen from the oil sands into 350,000 barrels a day of light oil, Syncrude is the largest single-source producer in Canada.

Syncrude Venture

Imperial Oil, with its 25 percent stake in Syncrude, is the other “natural bidder,” Williams said Monday, adding that Suncor has an advantage over Imperial because of the proximity of its Millennium mine to Syncrude’s operations. Suncor has no plans to become the operator of Syncrude and would work with partners to lower costs, Williams said.

“Having a 120-day offer period is a very large deterrent” for Suncor or any other bidder for Canadian Oil Sands, especially if the offer is share-based rather than cash, Nicholas Lupick, an analyst at AltaCorp Capital Inc. in Calgary, wrote in an e-mail. “Five percent moves in equities prices in a single day have become the norm in the energy space lately, so having an offer sitting out there for four months exposes the buyer to an enormous amount of risk.”

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