Suncor Extends Canadian Oil Sands Bid as Investors Balk

Updated on
  • Less than two-thirds of shareholders tendered shares: sources
  • Suncor announces it will extend its offer by more than 2 weeks

Suncor Energy Inc. extended its C$4.03 billion ($2.84 billion) hostile bid for Canadian Oil Sands Ltd. for a second time Friday. Two sources familiar with the tender process said Suncor failed to win the two-thirds support it was seeking from shareholders.

Based on early returns, shareholders believed to represent less than half of the shares outstanding voted to accept the offer of 0.25 Suncor shares for each of Canadian Oil Sands’, said one of the people, who asked not to be named because the matter is private. The final totals have yet to be tallied and the outcome could still change as more shares are tabulated, the person said. The offer expired Friday.

Canadian Oil Sands shareholders now have until 6 p.m. Mountain time Jan. 27 to tender their shares, Suncor said in a statement, without changing the conditions or providing a reason why.

“They’re going to have to accept that they’ve just added more risk and lost significant equity,” Rafi Tahmazian, a Calgary-based fund manager at Canoe Financial LP, said in a phone interview. Tahmazian had owned shares of Canadian Oil Sands and sold his position shortly after the Suncor bid. “That stock will probably trade down on Monday because now the market is going to say there’s a higher risk this deal may not go through.”

Canadian Oil Sands Chairman Donald Lowry asked shareholders not to act on Suncor’s extended bid, saying the extension “doesn’t change the fact that it is substantially undervalued and opportunistic” according to an e-mailed statement. Sneh Seetal, a spokeswoman for Suncor, was not immediately available when calls were made after normal office hours to her office and mobile phones or by e-mail.

Hostile Bid

The takeover turned hostile in October after Suncor made its third bid for Canadian Oil Sands. Suncor’s 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.

Suncor is seeking to increase its stake in the Syncrude Canada bitumen mining operation to 49 percent from 12 percent, making it the largest shareholder. The company is working to lower operating costs at its oil-sands operations as the industry faces the lowest crude prices in a decade. The slump has cost more than 40,000 Canadian workers their jobs and halted expansion plans, jeopardizing an estimated 1 million barrels a day of potential supply.

Suncor declined to increase the offer earlier this month even as some shareholders, including resource investor Seymour Schulich and Burgundy Asset Management Ltd., said Canadian Oil Sands is worth more. Instead, Williams maintained that its offer is “full and fair.”

Doing Battle

The battle has shaken up the country’s usually collegial oil patch. Kubik has accused Suncor of trying to "scare" shareholders into a deal. He said in a Jan. 6 video the company would be better off remaining independent, even as oil prices continue to tumble and his efforts to find another bidder haven’t yielded results. 

Williams said Jan. 5 in an interview with Bloomberg TV he wouldn’t sweeten the offer, vowing to walk away if there’s not enough support. "Hope isn’t a strategy," he said in Nov. 12 letter to Canadian Oil Sands shareholders.

Suncor had previously extended its offer to Jan. 8 from an earlier date of Dec. 4, following a ruling by the Alberta Securities Regulator requiring shareholders of the target company get more time to consider the bid.

West Texas Intermediate crude fell to $33.16 a barrel Friday, and oil is now trading below the level Canadian Oil Sands says Syncrude requires to cover costs of operating its bitumen mine. That’s something Suncor has said it could fix.

Canadian Oil Sands shares closed at C$7.47 Friday. That’s 21 percent more than the Oct. 2 pre-offer price of C$6.19. Suncor closed at C$33.25.