Will Suncor’s Hostile Takeover of Canadian Oil Sands Succeed?

It all depends on whom you believe.

Suncor Energy Inc. CEO Steve Williams says a majority of shareholders in Canadian Oil Sands Ltd. support his hostile bid to buy their company. His counterpart at Canadian Oil Sands, Ryan Kubik, says they don’t.

The truth will come out Friday night, when Suncor’s bid for Canadian Oil Sands expires. It’s been on the table for nearly 15 months. Suncor has offered 0.25 of one of its shares for each share in Canadian Oil Sands, and Williams said Tuesday that Canadian Oil Sands shares could lose up to 40 percent of their value, or a total of US$3.1 billion, unless the sale goes through.

Kubik says he’s spoken with his company’s investors, both retail and individual, and says they’re opposed to a takeover by Suncor. But in an interview Monday with Bloomberg, William said that “we’ve been getting a very different message from shareholders … that Canadian Oil Sands shareholders do not support an independent Canadian Oil Sands.”

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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 Tuesday. “We believe our offer is full and fair and we have no plans” to increase the offer for Canadian Oil Sands.

Kubik told Bloomberg Canada TV that the managers and boards of both companies have not been in touch with each other since April about sweetening the offer, although he added that Canadian Oil Sands has discussed with others the possibility of “maximizing value” for his company’s shareholders and concluded that the best option was for Canadian Oil Sands to remain independent.

The company’s shareholders believe Suncor’s offer “is substantially undervalued and they don’t intend to tender their shares,” Kubik said.

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Suncor’s ultimate goal is not so much to own Canadian Oil Sands but to raise its share in its bitumen mining joint venture with Syncrude Canada Ltd. from its current level of 12 percent to 49 percent, which would make it the largest of Syncrude’s seven shareholders. The company that now holds that title is Canadian Oil Sands, which is struggling under the weight of depressed oil prices.

Since 2010 Syncrude has failed to achieve its output targets. And since crude oil prices began their plunge in the summer of 2014, the company’s production levels fell to their lowest in 10 years. This has a similar negative effect on earnings by Canadian Oil Sands.

As a result, Williams said, Canadian Oil Sands’ investors need to accept Suncor’s offer. “Let the facts speak for themselves,” he said.

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One major investor in Canadian Oil Sands, though, is letting full-page advertisements in several Canadian newspapers speak on his behalf. Seymour Schulich, who owns about 5 percent of the company, urged fellow shareholders to reject Suncor’s offer, at least at its current price. In the ad he wrote, “The fact is Suncor needs Canadian Oil Sands more than we need them.”

In an interview Tuesday with CBC News, however, Schulich acknowledged that he wasn’t certain that his strategy of resisting Suncor’s offer was guaranteed to succeed. “I used to tell my clients when I was a money manager that if I could read the future I wouldn’t have to do this for a living,” he said. “I have no idea [whether his plan might succeed].”

But Schulich stressed, “I’ve had a lot of people talk to me who don’t like the bid.”

By Andy Tully of Oilprice.com

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