Canadian Oil Sands Wins Time for Bids as Suncor Mulls Steps

  • Canadian Oil Sands may still seek to remain independent
  • Suncor is reviewing Alberta Securities Commission's ruling

Canadian Oil Sands Ltd.’s shareholders won another month to find suitors willing to counter Suncor Energy Inc.’s C$4.5 billion ($3.37 billion) hostile takeover offer. They may lose Suncor’s bid in the process.

Canadian Oil Sands will have until Jan. 4 to find another bidder, Stephen Murison, vice-chair of the Alberta Securities Commission, said in a decision on Monday in Calgary. Suncor had asked the regulator to strike down Canadian Oil Sands’ shareholder rights plan that lengthened the bidding time and instead limit the window to 60 days, which would make its bid expire Dec. 4.

Suncor, Canada’s largest oil producer by market value, is seeking to increase its 12 percent stake in the Syncrude bitumen mine, whose largest owner is Canadian Oil Sands. Canadian Oil Sands board Chairman Donald Lowry said Suncor’s offer of 0.25 share for each Canadian Oil Sands share doesn’t adequately value the oil-sands miner, and that the company will review alternatives, including continuing as an independent company or looking at rival offers.

Pursuing Options

“The Board is continuing to aggressively examine potential alternatives such as superior offers from other parties or continuing as an independent company in order to ensure maximum value for shareholders,” Lowry said Monday in an e-mailed statement.

Canadian Oil Sands shares opened 0.7 percent higher to C$8.62 at the open in Toronto on Tuesday. Suncor rose 0.5 percent to C$37.08. Canadian Oil Sands shares are trading below the implied price of Suncor’s offer, suggesting investors aren’t confident the deal will go through.

Calgary-based Suncor has said it might scrap its offer if Alberta regulators gave the company more time to solicit competing bids. Suncor is reviewing the decision and determining its next steps, said Sneh Seetal, a company spokeswoman.

“Tactically, it makes sense if Suncor pulls their bid because they’re not getting anything from the additional time,” said Sandy Edmonstone, executive director and deputy head of global oil and gas at Macquarie Capital in Calgary.

Market Forces

The decline in crude prices by more than half from their 2014 peak has forced both companies, as well as rivals, to cut costs in an effort to make production in northern Alberta profitable. Suncor Chief Executive Officer Steve Williams has said the company is looking at other acquisitions to take advantage of the C$10 billion of free cash flow the oil producer has amassed since 2010.

Canadian Oil Sands expects 2016 operating costs to be about C$37 a barrel, generating cash flow of C$633 million, based on an expected price for West Texas Intermediate of $50 a barrel, the company said Tuesday in a statement. WTI for January delivery was little changed at $41.64 a barrel on the New York Mercantile Exchange at 10:43 a.m. London time.

“As a Suncor shareholder I don’t really care if they get it or not,” said John Kim, fund manager at Aston Hill Financial Inc. in Toronto. His firm manages about C$3 billion, including shares of Suncor. “It was opportunistic, they saw value in a slightly distressed company," he said, and the chance to take it over at what would be "a huge premium for shareholders."

Imperial Oil Ltd., which is the second-biggest owner in the Syncrude partnership with a 25-percent stake, has been seen as a potential bidder for Canadian Oil Sands. Imperial has declined to comment on speculation about an offer, said spokesman Pius Rolheiser.

Suncor Decision

“I think Suncor has to decide whether or not they’re prepared to wait,” Bradley Freelan, a partner at law firm Fasken Martineau in Toronto who has studied hostile takeover bids in Canada going back a decade, said in a phone interview. “They have the option of extending their bid without increasing the price." If Canadian Oil Sands isn’t able to find a white knight, "shareholders may in fact tender their bids.”

It would be unusual in Canada for Suncor to succeed in acquiring Canadian Oil Sands without winning some support from the target company’s board, Freelan said. In 15 cases studied by Fasken Martineau where a hostile bidder in Canada offered shares and ended up acquiring the target company, only one of those was without the support of the targeted company, he said.

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