Suncor May Scrap Bid If C$4.5 Billion Offer Delayed

Canadian Oil Sands Meets Possible Suitors
  • Four `credible parties' weighing bid, more meetings planned
  • Canadian Oil Sands the target of hostile bid from Suncor

Suncor Energy Inc. said it may scrap its C$4.5 billion ($3.36 billion) hostile bid for Canadian Oil Sands Ltd. if Alberta regulators endorse a poison pill that would give the target company more time to find other bidders.

"There is very real and distinct possibility that the Suncor offer will not be extended beyond the expiry of the 60-day permitted bid," the Calgary-based company said in a submission to the Alberta Securities Commission.

The commission will hear a plea by Suncor in Calgary Thursday to strike down a so-called poison pill adopted by Canadian Oil Sands last month. The shareholders rights plan would give it 120 days to weigh other offers, doubling the duration of the rights plan it had in place when Suncor made an offer that expires Dec. 4.

Suncor, Canada’s largest oil producer by market value, is seeking to take advantage of the oil slump to expand. Canadian Oil Sands is the largest owner of the Syncrude mining project in northern Alberta. Both companies are cutting costs after crude tumbled about 60 percent since the middle of 2014.

As it seeks to fend off the hostile takeover, Canadian Oil Sands said it had already met with one potential rival bidder and had plans to do the same with at least three others in the coming weeks.

"Four highly credible parties have executed confidentiality agreements," Jamie Anderson, deputy chairman at RBC Capital Markets, said in an affidavit submitted to the Alberta commission. Royal Bank of Canada was hired by Canadian Oil Sands to find alternatives to Suncor’s takeover.

Imperial Oil Ltd., which is the second-biggest owner in the Syncrude partnership, has been named as a potential bidder for Canadian Oil Sands. Canadian pension funds, which have been active in the oil patch this year, may also be interested, Randy Ollenberger, a Calgary-based analyst with the Bank of Montreal, said in an e-mail.

Argue Merits

A representative for Canadian Oil Sands declined to comment on the matter. A spokesman for Imperial was not immediately available for comment.

Suncor has argued that the 60 days it gave Canadian Oil Sands’ shareholders on Oct. 5 to tender their shares should be sufficient. Canadian Oil Sands and its advisers argued in their submissions that more time is needed to weigh potential third-party bids for the company, with marketing material sent to 25 parties.

Royal Bank said the process to attract rival offers is “active and ongoing.” Anderson argued more time is needed to meet with management, for site visits, and other negotiations.

"I firmly believe that with more time to run our process, there is a good prospect for one or more counter parties to make a proposal," Anderson said in his affidavit.

Suncor has hired JPMorgan Chase & Co. to advise on its bid for the company. David Harrison, the bank’s head of natural resource investment banking in Canada, said, in his experience, it typically only takes about four weeks for a rival bid to appear, according to his affidavit sent to the commission.

He argued four interested parties is not sufficient interest to justify extending the poison pill, and noted Canadian Oil Sands has failed to say whether the parties are interested in the whole company or what value they were considering.

"It is unusual for serious bidders to move as slowly as the parties identified by the COS board when there is an unsolicited offer outstanding with an expiration date fast approaching," Harrison said in his affidavit.

If Suncor were to withdraw its offer, Harrison warned that Canadian Oil Sands shares might fall to pre-offer prices or below.

"In my experience, truly interested parties would have executed confidentiality agreements and scheduled management presentations within one to two weeks of the announcement of the Suncor offer," Harrison said in his affidavit.

Ruling Watched

Suncor’s offer is conditional on getting two thirds of the outstanding stock tendered. The offer was for 0.25 Suncor shares for each of Canadian Oil Sands, which represented a 43 percent premium on the previous day’s close.

Canadian Oil Sands rose 0.80 percent to C$8.97 at 10:10 a.m. in Toronto, or 2 percent less than Suncor’s offer price of about C$9.15 a share. 

Suncor Chief Executive Officer Steven Williams said last week the company reached out to 60 percent of Canadian Oil Sands’ institutional investors and that the "majority" support the bid. 

Ryan Kubik, Canadian Oil Sands’ chief executive officer, said he believes the company’s shareholders aren’t being wooed by the offer, which he argues undervalues the company.

The ruling in Alberta could be the last time the length of a poison pill clause is debated in Canada before regulations setting the minimum time at 120 days go into effect next year, said Aaron Atkinson, a Toronto-based partner at Fasken Martineau, who specializes in mergers.

Hostiles Rare

"Certainly you see the logic to it," Atkinson said. "If the regulators have essentially reached agreement among themselves on 120 days being an appropriate time for a bid, why not allow the targets today to take advantage of that," he said.

Out of the 143 hostile takeover offers in Canada in the past decade, about 55 percent of the first bidders were successful, according to a study Atkinson co-authored earlier this year. In one-on-one battles with the target, the bidder is successful two-thirds of the time, the analysis shows. When they faced competition, the target was acquired 86 percent of the time although only a third of the time by the original bidder.

On average, it takes about 41 days for a competitive bid to arise, Atkinson said. It has been 51 days since Suncor’s initial bid for Canadian Oil Sands.

Shareholders in companies that have successfully fended off a hostile bid don’t tend to fair well, with 63 percent of them trading on average at a 17 percent discount to the bid price one year after it was made.

(Corrects currency in headline and lead of story published Nov. 26).)
Before it's here, it's on the Bloomberg Terminal. LEARN MORE