Suncor seen needing to raise Canadian Oil Sands bid after rebuff
CALGARY, Alberta (Bloomberg) -- Suncor Energy Inc. will probably need to sweeten its bid for Canadian Oil Sands Ltd. after failing to convince enough shareholders to accept a C$4.03-billion ($2.84-billion) offer that management repeatedly rejected for undervaluing the company.
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’, a person familiar with the matter said Friday, who asked not to be named because the matter is private. That’s short of the two-thirds of the shares Suncor was looking for.
"They will have to search out any larger shareholders that might have voted against the deal and see what it takes to get it over the hump," Rafi Tahmazian, a Calgary-based fund manager at Canoe Financial LP, said in an email. Tahmazian had owned shares of Canadian Oil Sands and sold his position shortly after the Suncor bid. "I suspect it could be a better ratio" of shares, meaning a higher offer, he said.
Suncor CEO Steve Williams said in a statement Monday he strongly believed in the value of the offer for Canadian Oil Sands, and that he was encouraged by the number of shares tendered. He did not disclose what percentage of shares were tendered by the deadline Friday evening. "We have decided to extend the offer in order to allow shareholders to continue to tender to the offer," he said.
Share Tendered
Canadian Oil Sands Chairman Donald Lowry said Monday Suncor has an obligation to disclose the number of shares tendered under Canadian and U.S. law because it is material for investors.
"We believe there is a fundamental disconnect between what Suncor led the market to believe they would have and what they actually have," Lowry said in a statement. "Suncor can now be transparent to our shareholders by disclosing the exact amount tendered."
Suncor declined to improve the offer earlier this month even as Canadian Oil Sands’ shareholders including resource investor Seymour Schulich, Burgundy Asset Management and Value Financial, spoke out against the merger. Those who opposed the deal were either looking for a higher offer price or were not interested in selling at all.
Hostile Takeover
Schulich, who currently holds about 5% of Canadian Oil Sands’ shares, has floated the idea of a warrant being issued alongside the offer that would protect shareholders if the price of oil rises.
Suncor extended its offer Friday of 0.25 share for each of Canadian Oil Sands to Jan. 27.
The takeover turned hostile in October after Suncor made its third bid for Canadian Oil Sands, a deal which would make Suncor the largest shareholder in the Syncrude Canada bitumen mining operation. Suncor’s 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.
Market skepticism increased last week that Suncor would succeed in the takeover. The premium of the bid over Canadian Oil Sands shares grew to more than 14% last week, according to data compiled by Bloomberg. Shares of Canadian Oil Sands closed 0.4% lower Friday at C$7.47, while Suncor fell 0.1% to C$33.25.
"The uncertainty of the bid now may cause the COS stock to weaken, which may motivate some more to tender," said Jennifer Stevenson, portfolio manager at 1832 Asset Management LP in Calgary, who doesn’t own Canadian Oil Sands shares. Suncor "will also have time to talk to any other institutional shareholders," she said.
Kyle Preston, an analyst at National Bank Financial, recommended in a research note on Sunday that Canadian Oil Sands shareholders tender their holdings to Suncor, which "offers a more defensive way to play energy in the current environment while providing the option to participate in the longer-term recovery in oil prices and potential synergies that may result from Suncor owning a greater stake in Syncrude."
