- Wins support of Canadian Oil Sands' board, some shareholders
- Requires 51% of shares to be tendered, less than earlier
Suncor Energy Inc. secured a deal to buy Canadian Oil Sands Ltd. after raising its all-stock offer by 12 percent to C$4.2 billion ($2.9 billion), winning approval from a management team that had rejected earlier approaches. Shares of the target surged.
Suncor, the country’s largest oil producer, raised its offer to 0.28 of its shares for each Canadian Oil Sands stock, according to a statement on Monday. The offer is worth about C$8.74 a share, a 17 percent premium to Canadian Oil Sand’s closing share price on Friday. The deal has the support of both companies’ boards, according to the statement.
The takeover would increase Suncor’s stake in the Syncrude Canada oil-sands mine and upgrader to 49 percent from 12 percent, making it the largest shareholder. Greater ownership of Syncrude would help Suncor reduce costs at its nearby bitumen mine as the industry faces the lowest crude prices in more than a decade.
“Canadian Oil Sands had to do a deal because the downside risk was greater,” said Sachin Shah, a special situations and merger arbitrage strategist at Albert Fried & Co. in New York who doesn’t own any Canadian Oil Sands shares. “What would that increase have been if oil was in the $40s?” he said of the sweetened offer.
Oil’s crash has weighed on shareholders since the hostile bid was first announced on Oct. 5 and West Texas Intermediate was trading around $45 a barrel. The U.S. benchmark has since tumbled more than 35 percent and sank below $30 for the first time in 12 years on Jan. 12. Prices on Monday fell as much as 3.6 percent to $28.36 on the New York Mercantile Exchange.
At the Dec. 4 deadline for the original offer, the deal would have valued Canadian Oil Sands shares at about C$9 each. The shares reached more than C$10 in November on optimism management and the board would find a white knight. But with no counter offer on the table and the deterioration of the oil market, the stock slid to C$7.48 on Friday.
Canadian Oil Sands jumped as much as 16 percent n Toronto on Monday, and closed 11 percent higher at C$8.27. Suncor fell 4.6 percent to C$29.77, extending its decline this year to 17 percent.
Suncor’s attempt to take over its Syncrude partner turned hostile in October after Chief Executive Officer Steve Williams approached Canadian Oil Sands’ CEO Ryan Kubik earlier in 2015 with two different offers. A war of words followed, with Kubik arguing that his company was better off independent, while Williams countered that his forecast for the price of oil staying “lower for longer” meant shareholders would be better served owning Suncor shares. The companies resumed talks in the past few days, people with knowledge of the discussions said Sunday.
“We believe this transaction delivers excellent value to COS shareholders while maintaining Suncor’s commitment to capital discipline, providing both companies’ shareholders with near and long-term value,” Williams said in the statement.
The new terms require approval of at least 51 percent of Canadian Oil Sands shares, according to the statement. Previously the requirement was a minimum of two-thirds. Between 40 percent and 50 percent of shareholders opted to accept the earlier offer, according to people familiar with the matter, who asked not to be named because the matter is private.
"I will be tendering my shares, and consistent with the Canadian Oil Sands board’s recommendation, I encourage my fellow shareholders to tender their shares" said resource investor Seymour Schulich, who earlier this month said he held about 5 percent of the shares, and had spoken out against the earlier offer.
The new offer allows Canadian Oil Sands to suspend dividend payouts in the first quarter of 2016. It also allows Suncor to match any other offer Canadian Oil Sands may receive. The agreement also has a $130 million break fee.
JPMorgan Chase & Co. and CIBC World Markets advised Suncor on financial matters, while Blake, Cassels & Graydon LLP and Sullivan & Cromwell LLP are the company’s legal advisers. RBC Capital Markets is Canadian Oil Sands’ financial adviser, and Osler, Hoskin & Harcourt LLP and Norton Rose Fulbright Canada LLP provided legal advice.