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Suncor Sweetens Deal For Canadian Oil Sands

Just two weeks ago, Suncor Energy Inc. insisted it wouldn’t sweeten its offer in a hostile takeover bid for Canadian Oil Sands Ltd. That was then. Suncor confirms that the hostile bid has become a friendly deal between the two Canadian companies now that it has raised its offer.

Originally, Suncor had offered 0.25 of each of its own shares in exchange for a share in Canadian Oil Sands, an offer that Canadian Oil Sands said was too low. On Monday, Suncor said it had raised the offer by three points, to 0.28 of a Suncor share for each share of Canadian Oil Sands, for a total of US$2.92 billion, or C$4.24 billion.

Ryan Kubik, the CEO of Canadian Oil Sands, said early this month that his investors agree that the offer was too low, but Suncor CEO, Steve Williams, has said all along that Canadian Oil Sands Investors liked the offer, especially since the company’s shares could lose up to 40 percent of their value, or a total of US$3.1 billion, unless the deal goes through.

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As a result, Williams said, Suncor has no intention of increasing its offer to buy 67 percent of the shares in Canadian Oil Sands. “Let me be clear and frank,” Williams said in a conference call on Jan. 5. “We believe our offer is full and fair and we have no plans” to increase the offer for Canadian Oil Sands.

Suncor’s real target in the proposed merger has been to raise its holding in its bitumen mining joint venture with Syncrude Canada Ltd. from its current 12 percent to 49 percent, which would make Suncor the largest shareholder in Syncrude. Canadian Oil Sands now holds that title, but the depressed oil market over the past 19 months has harmed both Syncrude and Canadian Oil Sands.

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Suncor’s offer for Canadian Oil Sands became a hostile bid in October when Kubik insisted that, despite its current financial bind, Canadian Oil Sands would fare better if it remained independent. Williams countered that the price of oil was bound to stay low for a long time, hurting Canadian Oil Sands investors.

The Suncor offer expired Jan. 8, with Williams evidently still adamant that he wouldn’t sweeten his offer. But the two sides resumed negotiations recently and reached an agreement based on Suncor’s improved offer.

The two companies issued a joint statement on Monday saying the deal had the support of both their boards. In the statement, Williams said, “We believe this transaction delivers excellent value to COS [Canadian Oil Sands] shareholders while maintaining Suncor’s commitment to capital discipline.”

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Also contributing to the statement was Canadian entrepreneur Seymour Schulich, who owns about 5.2 percent of Canadian Oil Sands stock. Schulich originally opposed a merger, supporting Kubik’s argument that Suncor’s offer was too low and that Canadian Oil Sands would be better off as an independent company.

Now, however, Schulich said he supports a merger. “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,” he said.

Under the new terms of the deal, investors holding at least 51 percent of Canadian Oil Sands’ shares must approve the merger. Under Suncor's previous offer, a super-majority of two-thirds of Canadian Oil Sands’ shares was required for approval. This time, Suncor’s offer expires on Feb. 5.

By Andy Tully Of Oilprice.com

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