Battle of the shareholder incompetents
Suncor’s just announced revised takeover bid for Canadian Oil Sands (COS) was largely anticipated. After bitter public denouncements between both parties they have finally reached a sweetened agreement. Along the way, however, both companies displayed an incompetent grasp of shareholder communication in reaching out to the COS shareholder base. In particular the COS board and management disregarded their shareholder confidence ratings and left the company vulnerable to a hostile takeover. With both companies having a combined market cap of almost $ 50 billion it is amazing that neither side was able to present a compelling case to the investing public. Despite a history of shareholder outreach experience and advice from advisers and proxy firms, the case to support one company over the other was never properly made.
Suncor was clearly in the driver’s seat, with record low oil prices and negative long term energy outlooks. In addition COS board and management are among the worst rated by Brendan Wood International, which conducts surveys of 1,400 active institutional shareholders. Known for his TopGun ratings, the respected rating agency had assigned COS a BottomGun rating, and stated that “shareholders are almost unanimously agreed … their view of Canadian Oil Sands’ management and Board, the confidence ratings are amongst the lowest in the sector and have been for years.” ( Interesting that Brendan Wood published the same findings for the infamous Canadian Pacific Board, prior to its takeover by activist Bill Ackman).
So why was Suncor’s original offer for COS rejected on the January 8th deadline, reportedly obtaining less than half of COS shareholder votes? Significant shareholder Seymour Schulich did provide some breathing room in his newspaper in the Financial Post. “Why I’m not selling to Suncor at this price.” Which in essence said: “Offer me a price I can accept and I’ll sell.” It is noteworthy that COS did not publish its own ad, but left the talking to Schulich.
Suncor vs. COS: Poor investor relations and incompetent messaging
Suncor did all the right things in its bid to win over COS shareholders. Conference calls, newspaper ads, CEO video and media interviews, plus they obtained the services of a skilled proxy firm ( as did COS). However the tenor and content of Suncor’s communications was remarkably ineffective and significantly added to their failure to obtain the desired two thirds support. Negative messaging in hostile take- over situations is very questionable. Some of their advertised messages: “Hope is still not a strategy,” “Avoid a loss in your portfolio” “Sharp drop in COS share price almost certain.”
Why did Suncor berate the COS shareholder? They should have outlined the positives of the deal. “Canadian Oil Sands and Suncor together will create an energy powerhouse.” Suncor did not appear to lay out a strategy to maximize the value of COS assets and explain how it would complement its current operations. Positive messaging will always outweigh the negative approach. For Suncor with a market cap of $46 billion versus COS at $3.5 billion, it was difficult to appear friendly and magnanimous but management should at least have tried.
The newly extended offer indicates Suncor still has some selling to do. After some postulating by CEO Steve Williams that the offer could lapse without a significant show of support, he is now prepared to offer an increase from 0.25 to 0.28 of a Suncor share for each COS share, a 17 per cent premium to last Friday’s closing share price. And he has significantly lowered the threshold of required support from two thirds to 51 per cent. Could there be concerns the higher threshold would not be met? Clearly he wants the company.
COS, on the other hand, has nowhere to go. Schulich could have done the company a big favour in his previous years of ownership by holding management and Board accountable for their poor shareholder ratings. It is not rocket science in these days of sophisticated shareholder outreach to install a turnaround plan, unify shareholder messaging and provide greater transparency and governance. The “victory” proclaimed by COS Chairman Don Lowry, following the initial vote, was very short lived.
In proxy fights the company that lays out the most credible and thoughtful plan to grow the business generally wins majority shareholder support. Never underestimate the shareholder who will base decisions on more than price alone. Competent messaging by both COS and Suncor would have served shareholders of both companies very well.
There will be many more takeovers in this environment, some friendly, some not. But the intelligent Board of Directors will make sure it understands the company’s current ratings with investors and take steps to fix any shortcomings. A well regarded Board and management is the only insurance policy that matters.