Canadian Oil Sands seeks white knight as Suncor closes in on bid

CALGARY, Alberta (Bloomberg) -- Suncor Energy Inc.’s battle for Canadian Oil Sands Ltd. is getting more crowded.

As it seeks to fend off the $4.5-billion hostile takeover, Canadian Oil Sands said it had already met with one potential rival bidder and had plans to do the same with at least three others in the coming weeks.

"Four highly credible parties have executed confidentiality agreements," Jamie Anderson, deputy chairman at RBC Capital Markets, said in an affidavit submitted to the Alberta Securities Commission. Royal Bank of Canada was hired by Canadian Oil Sands to find alternatives to Suncor’s hostile takeover.

Canadian Oil Sands made the disclosure in submissions to the regulator, which will hear a plea by Suncor in Calgary on Thursday to strike down a so-called poison pill adopted by Canadian Oil Sands last month. The shareholders rights plan would give it 120 days to weigh other offers, doubling the duration of the rights plan it had in place when Suncor made an offer that expires Dec. 4.

Suncor, Canada’s largest oil producer by market value, is seeking to take advantage of oil’s slump to expand. Canadian Oil Sands is the largest owner of the Syncrude mining project in northern Alberta. Both companies are cutting costs after crude tumbled about 60% since the middle of 2014.

Imperial Oil Ltd., which is the second-biggest owner in the Syncrude partnership, has been named as a potential bidder for Canadian Oil Sands. Canadian pension funds, which have been active in the oil patch this year, may also be interested, Randy Ollenberger, a Calgary-based analyst with the Bank of Montreal, said in an email.

Argue Merits

A representative for Canadian Oil Sands declined to comment on the matter. A spokesman for Imperial was not immediately available for comment.

"We will argue the merits of our position tomorrow at the Alberta Securities Commission hearing as scheduled," Sneh Seetal, a spokeswoman for Suncor, said in an email.

Canadian Oil Sands closed 0.9% higher at C$8.90 in Toronto. Suncor dropped 1.1% to C$36.60.

More Time

Suncor has argued that the 60 days it gave Canadian Oil Sands’ shareholders on Oct. 5 to tender their shares should be sufficient. Canadian Oil Sands and its advisers argued in their submissions that more time is needed to weigh potential third-party bids for the company, with marketing material sent to 25 parties.

Royal Bank said the process to attract rival offers is “active and ongoing.” Anderson argued more time is needed to meet with management, for site visits, and other negotiations.

"I firmly believe that with more time to run our process, there is a good prospect for one or more counter parties to make a proposal," Anderson said in his affidavit.

Ruling Watched

Suncor’s offer is conditional on getting two thirds of the company’s outstanding stock tendered. The offer was for 0.25 Suncor shares for each of Canadian Oil Sands, which represented a 43% premium on the previous day’s close.

Suncor CEO Steven Williams said last week the company reached out to 60% of Canadian Oil Sands’ institutional investors and that the "majority" support the bid. 

Ryan Kubik, Canadian Oil Sands’ CEO, said he believes the company’s shareholders aren’t being wooed by the offer, which he argues undervalues the company.

The ruling in Alberta could be the last time the length of a poison pill clause is debated in Canada before regulations setting the minimum time at 120 days go into effect next year, said Aaron Atkinson, a Toronto-based partner at Fasken Martineau, who specializes in M&A.

Hostiles Rare

"Certainly you see the logic to it," Atkinson said. "If the regulators have essentially reached agreement among themselves on 120 days being an appropriate time for a bid, why not allow the targets today to take advantage of that,"

Out of the 143 hostile takeover offers in Canada in the past decade, about 55% of the first bidders were successful, according to a study Atkinson co-authored earlier this year. In one-on-one battles with the target, the bidder is successful two-thirds of the time, the analysis shows. When they faced competition, the target was acquired 86% of the time although only a third of the time by the original bidder.

On average, it takes about 41 days for a competitive bid to arise, Atkinson said. It has been 51 days since Suncor’s initial bid for Canadian Oil Sands.

While there are some cases when regulators upheld an extended rights plan, generally they will reject it, Atkinson said.

"Sometimes they’ll say you have another 10 or 15 days. But certainly the thrust of all the decisions historically has been, ‘This deal has been in the market for however long, anyone who is going to come along has had their opportunity,’" he said. "At some point, the first mover should have some advantage."