Blockbuster in the oilpatch
Suncor launches hostile takeover, Canadian Oilsands shares skyrocket
The price of Canadian Oil Sands Ltd. stock jumped by 55 per cent Monday as shareholders bet on a bidding war after a much- anticipated $ 6.6- billion blockbuster takeover offer by Suncor Energy Inc.
Suncor offered to give a quarter of a share for each Canadian Oil Sands share tendered, setting the price at about $ 8.84 or about $ 4.3 billion, a deal it admitted had been discounted due to fears of “lower for longer” oil prices.
It would also take on $ 2.3 billion in Canadian Oil Sands debt.
Canadian Oil Sands closed at $ 9.60 on Monday, up $ 3.41, while Suncor slipped more than two per cent to $ 34.60.
On a morning conference call, Suncor president and chief executive Steve Williams said he approached Canadian Oil Sands to talk takeover in March and April, but was rebuffed.
Suncor then was willing to offer .32 of a share for each Canadian Oil Sands share, about 28 per cent more than it offered on Monday.
“Oil prices have declined sharply and the futures curve for oil would suggest that it may be several years before we regain the pricing levels we were anticipating at the time the first offer was made,” Williams said on Monday.
“In light of this structural change in the market, we believe the current offer represents a full and fair value for COS shareholders and allows them to continue to participate in any potential oil price upside.”
The deal, if accepted by twothirds of shareholders before the Dec. 4 deadline, would increase Suncor’s share of Syncrude from 12 per cent to 48.74 per cent.
COS shareholders would wind up with 7.7 per cent of Suncor.
The two oilsands mining operations located near Fort McMurray are neighbours and they are the oldest producers in the oilsands industry.
The deal would boost Suncor’s output from about 580,000 barrels per day to about 690,000 bpd, about 82 per cent of that from the oilsands.
Williams said Suncor has not identified any other potential takeover targets but has about $ 12 billion in cash on its balance sheet, some of which would be used to pay down COS’s debt.
In a brief news release, COS urged shareholders not to make any decisions until it has time to issue an official reaction to the Suncor offer.
But Seymour Schulich, a Canadian billionaire who owns 25 million shares, or five per cent, of Canadian Oil Sands, said he will vote “no” because the company is worth $ 20 per share.
“It’s not a lowball offer, it’s a noball offer,” he told the Financial Post.
“I ain’t selling at that price.”
It’s not a lowball offer, it’s a noball offer. I ain’t selling at that price.
SEYMOUR SCHULICH
FirstEnergy Capital analyst Michael Dunn suggested in a report last April that Imperial Oil Ltd., which owns 25 per cent and manages Syncrude under contract with the help of its parent company, Exxon Mobil Co., is a logical buyer of COS.
But in an interview on Monday, he said he doesn’t think Imperial will make a competing bid.
“They’ve had time to bid and they haven’t bid,” Dunn said.
“We think that if it got into a competitive bidding situation that Suncor could probably afford to bid the most. If you’re Imperial, you probably realize that.”
He said he doesn’t think the other shareholders of Syncrude will bid, either.
Chinese national oil companies CNOOC Ltd. and Sinopec hold nine per cent and seven per cent, respectively, but wouldn’t likely be allowed to control an oilsands project under federal law. American firm Murphy Oil and Japanese Mocal Energy each have five per cent, but neither is a likely bidder, he said.
Dunn said he thinks the deal could be the first of many in the oilsands if oil prices stay low. Shares in MEG Energy Inc., another suggested Imperial takeover target, jumped 22 per cent Monday.
Imperial Oil spokesman Pius Rolheiser said in an e- mail it was “premature” to comment on potential implications of the transaction on the Syncrude joint venture.
Not all analysts agreed Imperial wouldn’t bid.
“It’s possible that Imperial will step up, as the company has expressed interest in making an acquisition and could pay about $ 10 per share,” said analyst Nick Lupick of AltaCorp Capital in a note.
CIBC Analyst Arthur Grayfer and Amir Arif of Cormark Securities agreed, suggesting Imperial might make a bid because Suncor’s offer values COS’s production at a much lower level than what it costs to build a new project.
Analysts pointed out the Suncor offer equates to about $ 64,000 per flowing barrel, much cheaper than the $ 100,000 per barrel Imperial spent to build its new Kearl oilsands mining projects.
Suncor chief financial officer Alister Cowan said the deal offers COS shareholders a premium of 43 per cent on share price and an increase of 45 per cent on dividends.
He added that Suncor’s dividend has increased by almost 200 per cent over the past five years while the COS dividend has been reduced by 90 per cent.
Ominously for COS’s Calgarybased staff, he said Suncor hoped to eliminate $ 25 million per year in “redundant overhead.” Canadian Oil Sands has 23 full- time and four part- time employees.
Two weeks ago, Suncor agreed to spend $ 310 million to buy another 10 per cent stake in the Fort Hills oilsands project.