Pipelines carrying steam and oil run at the Suncor Firebag in-situ oil sands operations near Fort McMurray, Alberta. Suncor Energy’s offer underestimates the value of Canadian Oil Sands’ combined stakes in a Syncrude Canada partnership in Northern Alberta, the company said.

Bloomberg
Toronto


Canadian Oil Sands Ltd urged shareholders to reject Suncor Energy’s C$4.3bn ($3.3bn) hostile takeover, accusing the larger rival of undervaluing its business and exploiting undisclosed information about a partnership in making a low-ball offer.
Suncor’s bid is “wholly inadequate” and has less value than the current market price, Calgary-based Canadian Oil Sands said yesterday in a statement.
“The board and management of COS will not tender to the Suncor bid,” chairman Donald Lowry said. “Major shareholders have stated they will not tender. We strongly recommend you join us in rejecting this undervalued, opportunistic and exploitive bid.”
The price underestimates the value of the companies’ combined stakes in a Syncrude Canada partnership in Northern Alberta and doesn’t reflect a premium to potentially acquire operational control of the venture through the deal, Canadian Oil Sands said. The company also alleged Suncor is aware of several yet-to-be-disclosed cost-reduction and value-enhancing initiatives at Syncrude that aren’t reflected in the bid.
Suncor, looking to bolster its status as Canada’s largest crude producer amid a prolonged slump in oil prices, renewed efforts this month to take over the biggest shareholder of Syncrude after two friendly offers were rejected earlier this year. Canadian Oil Sands said it remains cash-positive and can still tap most of its C$1.5bn credit facility. It said its shares tend to rise faster than Suncor’s when oil prices improve.
Suncor’s offer is “a little light,” Doug Warwick, a managing director at TD Asset Management, said on October 5. The firm is Canadian Oil Sands’ biggest shareholder with almost 5%.
A representative for Suncor wasn’t immediately available for comment outside business hours.
Suncor’s offer would boost its share in Syncrude to 49%, giving it almost twice the stake of the next-biggest holder, Imperial Oil Ltd, which is majority-owned by Exxon Mobil Corp With the capacity to process bitumen from the oil sands into 350,000 barrels a day of light oil, Syncrude is the largest single-source producer in Canada.
Canadian Oil Sands’ stock had tumbled almost 40% this year through the end of September before Suncor offered 0.25 of its shares for each of the target’s. The stock rebounded past C$10, the highest since June, and closed last week at C$9.94.
Canadian Oil Sands said the stock has only dipped below the implied offer price 6% of the time over the past five years. Earlier this month, it also announced a new shareholder rights plan, which calls for 120 days to consider bids.
Canadian Oil Sands also pointed to Suncor’s recent acquisition of an additional 10% stake in the Fort Hills oil-sands project from Total in September for C$310mn. The transaction for those assets, which neighbour the Syncrude reserves, was valued at roughly $56,000 a barrel per day.
Two weeks later, the implied value of Suncor’s bid for Canadian Oil Sands was $54,000 a barrel even though its reserves have a fully-integrated upgrader, unlike Fort Hills, and are more developed, the company said.
Canadian Oil Sands said its financial adviser, Royal Bank of Canada, provided the board with a written opinion that the Suncor bid is inadequate. It said the company is looking at “strategic alternatives” including a merger or partnership, and would also consider a sale if it reflected “full and fair value.”
Suncor has been striving to convince shareholders of the merits of the deal, with meetings from San Francisco to Boston, chief executive officer Steve Williams said in an October 6 interview in New York.Imperial Oil, with its 25% stake in Syncrude, is the other “natural bidder,” he said that day, adding that Suncor has an advantage over Imperial because of the proximity of its Millennium mine to Syncrude’s operations.