Oil Sands Giant's Hostile Takeover Teeters as Crude Plunges

What Do a Wheel and a License Have in Common?
Suncor Energy Inc.'s C$4.13 billion ($2.93 billion) takeover of Canadian Oil Sands Ltd. looks far from certain, with the target's share price trading at a record gap to the bid just a day before expiring.

(Bloomberg) -- Suncor Energy Inc.’s C$4.13 billion ($2.93 billion) takeover of Canadian Oil Sands Ltd. looks far from certain, with the target’s share price trading at a record gap to the bid just a day before expiring.

Shares of Calgary-based Canadian Oil Sands closed Wednesday at C$7.47 in Toronto, putting Suncor’s C$8.52 per share offer at a record 14.1 percent premium since the deal was announced on Oct. 5., according to data compiled by Bloomberg. Suncor, the country’s largest oil producer by market value, is offering 0.25 share for each of Canadian Oil Sands.

The market “seems to be pricing in a reasonably high probability it doesn’t happen,” said Randy Ollenberger, an analyst at Bank of Montreal’s BMO Capital Markets unit in Calgary. “It kind of reflects the fact that the market is concerned about the downside risk here if it doesn’t go ahead."

The takeover battle has shaken up the country’s usually collegial oil patch. Canadian Oil Sands Chief Executive Officer Ryan Kubik has accused Suncor of trying to "scare" shareholders into a deal. He said in a Jan. 6 video the company would be better off remaining independent, even as oil prices continue to tumble and his efforts to find another bidder haven’t yielded results. Suncor CEO Steve Williams said Jan. 5 in an interview with Bloomberg TV he wouldn’t sweeten the offer, vowing to walk away if there’s not enough support. "Hope isn’t a strategy," he said in Nov. 12 letter to Canadian Oil Sands shareholders.

‘Vocal Opposition’

West Texas Intermediate, the North American benchmark crude, has fallen about 25 percent since Suncor made its unsolicited bid. Canadian Oil Sands owns 37 percent of Syncrude, the largest shareholder in the project which mines and upgrades bitumen in Alberta. The company’s Suncor is also a stakeholder, owning 12 percent. Canadian Oil Sands shares rose 1.1 percent to C$7.56 at 10:38 a.m. in Toronto.

Shareholders opposed to the deal, including Seymour Schulich, the resource investor who pioneered a royalty payment concept for the mining industry, and Burgundy Asset Management Ltd., say Canadian Oil Sands is worth more. Their vocal opposition to the deal -- Schulich took out an ad in the Globe and Mail newspaper trashing it -- has heightened speculation about how many shareholders agree with them.

“Everybody I have talked to thinks the offer is too low,” Schulich said Monday in a telephone interview. He says he owns about 5 percent of Canadian Oil Sands, making him one of the largest shareholders.


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Copyright 2016 Bloomberg News.

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