Suncor, Canadian Oil Sands Dig In as Investors Mull Share Offer

  • Williams sees indications that most shareholders support bid
  • Suncor Energy's C$4.3 billion offer expires on Jan. 8

Suncor Energy Inc. and Canadian Oil Sands Ltd. remained entrenched in their positions as the deadline neared for Suncor’s offer to buy the largest stakeholder in the Syncrude oil-sands operation.

Suncor’s Chief Executive Officer Steve Williams said he has no plans to sweeten the offer for Canadian Oil Sands and that a majority of shareholders support the bid. Ryan Kubik, Canadian Oil Sands CEO, said he, too, has met with several institutional and retail investors and said he believes they won’t tender their shares.

The offer of 0.25 Suncor share for each of Canadian Oil Sands’ expires on Friday. Canadian Oil Sands shares could fall as much as 40 percent without the C$4.3 billion ($3.1 billion) offer, Williams said Tuesday on a conference call.

“All the way through we’ve been getting a very different message from shareholders” than the one Canadian Oil Sands has gotten, Williams said Monday in an interview. “The message we’ve got is that Canadian Oil Sands shareholders do not support an independent Canadian Oil Sands.”

Suncor has targeted 67 percent of Canadian Oil Sands shares to be tendered for the deal to go ahead and Williams will assess support for the offer after the deadline on Friday.

No Contact

Canadian Oil Sands’ board and management has not had any contact with Suncor since April about improving the offer, Kubik said. The company held discussions with other parties about "maximizing value" for shareholders and determined the best option was to remain as an independent entity, he said.

Shareholders "think the offer is substantially undervalued and they don’t intend to tender their shares," Kubik said in an interview with Bloomberg Canada TV.

Suncor is seeking to increase its stake in the Syncrude Canada Ltd. bitumen mining and upgrading joint venture to 49 percent from 12 percent, which would make it the largest shareholder. The takeover of Canadian Oil Sands, which has the largest stake in Syncrude among seven owners, comes as the oil-sands industry struggles with crude prices near the lowest since 2009, a level that has ground future expansion to a halt.

Syncrude has missed production targets each year since 2010 and last year’s output was the lowest in a decade. Canadian Oil Sands has fallen short of adjusted-earnings-per-share estimates in seven of the past eight quarters, according to data compiled by Bloomberg. That compares with four out of eight misses for Suncor.

“Let the facts speak for themselves,” Williams said in an interview on Monday. “The guidance that has been given, particularly on reliability, has been overstated and under-delivered.”

Suncor’s shares rose 0.3 percent to C$35.40 Tuesday, while Canadian Oil Sands climbed 1.9 percent to C$8.05.

Cutting Costs

Some Canadian Oil Sands shareholders are outspokenly opposed to Suncor’s offer. Canadian businessman Seymour Schulich, who says he owns 5 percent of Canadian Oil Sands, said Monday in a phone interview that he won’t tender his shares.

"Everybody I have talked to thinks the offer is too low," he said.  "What they end up doing as a result of that, God only knows."

Schulich would like to see Suncor issue warrants with the offer as a way of sweetening the pot and giving Canadian Oil Sands’ investors a chance to benefit from the rise in oil prices.

While he’s not part of a formal coalition of investors, Schulich said he has spoken to several investors, including Toronto-based Burgundy Asset Management Ltd., who he said agreed the bid was too low as it is. Burgundy put out its own report in December on why it would reject the tender offer.

Suncor’s bid is worth C$8.85 a share, a 9.9 percent premium to Canadian Oil Sands, according to data compiled by Bloomberg. Suncor said its proposal represents a 44 percent premium to Canadian Oil Sands’ trading price before the offer and would result in a 45 percent cash dividend increase for shareholders.

Staying Independent

Kubik reiterated that shareholders’ interests are best served by remaining independent and noted the company lowered costs by more than C$1.3 billion last year, with another 20 percent reduction coming this year. The company will also reduce the number of board members and their pay, it said in a letter to shareholders, reminding them that management is still considering alternatives to Suncor’s offer.

Canadian Oil Sands has reduced its break-even point to $39 a barrel from $45 previously, in part because of the cost cuts but also because of the positive benefit from foreign exchange, Kubik said. 

"The shareholders are saying demonstrate better production. We’re focused on production improvement as well as cost improvement. We’ve seen significant cost improvement already. That’s already been demonstrated. They have confidence in that," he said.

Syncrude production fell to a 10-year low of 90.6 million barrels in 2015 from 94.2 million barrels a year earlier, the company said on Monday. In December, output fell to 238,800 barrels a day from 322,600 barrels in November because of equipment maintenance, the company said.

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