Canadian Oil Sands Ltd. (COS) is urging its shareholders to turn down a hostile takeover offer by Suncor Energy Inc. (SU) to buy the company, saying Suncor was unfairly seeking a bargain in a period of low oil prices.
The current low price of oil has led to mergers in Canada’s oil sands industry, which sells its oil for some of the lowest prices in the world but has the highest recovery costs. On Oct. 5, Suncor offered to pay $3.29 billion for COS in an effort to gain a greater share of Syncrude Canada Ltd., the country’s largest producer of synthetic crude. COS has a 37 percent stake.
Suncor, already Canada’s largest oil producer, also holds 12 percent of Syncrude. Buying COS, and thereby COS’ stake in Syncrude, would reinforce its leading status by increasing its share of Syncrude to 49 percent, nearly twice as great as the 25 percent stake of Imperial Oil Ltd., which now holds the largest share of the company.
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COS’ chief executive, Ryan Kubik, said Suncor’s current stake in Syncrude has given it access to information about the company that isn’t yet known to COS shareholders, giving it an unfair advantage in making the offer for his company. This information includes Syncrude’s budget planning for 2016 and an accelerated program to cut costs.
“Suncor is essentially an insider,” Kubik told the Toronto-based Globe and Mail. “They’ve been sitting at the Syncrude operation. They understand all the initiatives under way, and information that our shareholders, quite frankly, don’t even know. … They can use that information to capture value before it’s fully recognized in the market and fully understood by our shareholders.”
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Kubik didn’t respond to questions about whether he believed using this inside information might be illegal.
COS has resisted Suncor’s offer from the start and, on Oct. 7, adopted a poison pill in the form of a new Shareholder Right Plan giving them 120 days to consider any bids, making a takeover less attractive to Suncor. It also would give COS shareholders the right to buy new stock at a price substantially lower than the market price, making a takeover even more unpalatable to Suncor.
Suncor CEO Steve Williams said he was disappointed in COS’ position. “This inappropriate defensive tactic limits the ability of COS shareholders to decide,” he said at the time the poison pill plan was adopted.
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In COS’ latest act of resistance, board chairman, Donald Lowry, wrote a letter to shareholders on Oct. 19 saying the company would do all it can to prevent the takeover. “The board and management of COS will not tender to the Suncor bid,” he wrote. “Major shareholders have stated they will not tender. We strongly recommend you join us in rejecting this undervalued, opportunistic and exploitive bid.”
COS said the Royal Bank of Canada, which serves as its financial adviser, has issued a written opinion calling Suncor’s bid too low. Doug Warwick, a managing director at TD Asset Management, agreed, calling Suncor’s offer “a little light.”
Meanwhile, COS said it is exploring “strategic alternatives,” including a merger or a partnership, and would even accept a sale, but only at “full and fair value.”
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com