Suncor Energy Inc., Canada’s biggest energy company, made an unsolicited offer to buy Canadian Oil Sands Ltd. for about $3.3 billion, taking advantage of plunging crude prices to add production in Alberta.
Suncor is offering a 43 percent premium to Friday’s closing share price and promised higher dividends to Canadian Oil Sands shareholders if the proposal is accepted, Calgary-based Suncor said in a statement Monday.
Canadian Oil Sands shares surged 47 percent to C$9.09 at 10:25 a.m. in Toronto, above the C$8.84 offer price. Suncor fell 2.4 percent to C$34.53.
“We are in the midst of a low crude price environment and the near to mid-term prospects of a price recovery appear poor,” Suncor president and CEO Steve Williams said in a conference call Monday. “The outlook for markets appears very challenging, especially for standalone producers like Canadian Oil Sands. We’re offering a significant premium to COS’ current market price and also providing exposure to a meaningful dividend increase.”
Suncor, which has its U.S. headquarters in Denver, project from Total SA. That deal gave Suncor a 50.8 percent stake in the project. Fort Hills, north of Fort McMurray, Alberta, is expected to begin production in 2017 and will ramp up to 180,000 barrels a day.
Canadian Oil Sands is the biggest shareholder of the Syncrude joint venture, which also includes Imperial Oil Ltd. and Suncor as investors. Suncor’s offer would boost its share to 49 percent, giving it almost double the stake of the next- biggest holder, Imperial.
Previous approaches by Suncor in March and April were turned down by the company and the board, Williams said on a conference call. Suncor decided to set aside the takeover plan until oil prices collapsed several months later, he said. The deal requires the support of two-thirds of Canadian Oil Sands’s shareholders.
The offer is 22 percent less than Suncor’s initial offer on April 9 of 0.32 of a Suncor share, according to regulatory filings. That earlier offer would have amounted to C$12.59 per Canadian Oil Sands share, as of the close that day. Under the terms of Monday’s offer, each shareholder would receive 0.25 of a Suncor share.
“They said they weren’t interested in pursuing a negotiated outcome,” Williams said in a phone interview. “My feeling was that having reflected and still seen great benefits for both sets of shareholders, I thought the only way then to take it ahead was to make the offer directly to their shareholders.”
Requests for comment from a Canadian Oil Sands spokesperson weren’t immediately returned.
Including the company’s estimated outstanding net debt of C$2.3 billion as of June 30, the total transaction value is about C$6.6 billion, Suncor said. This would be the second- largest deal for Suncor, after its purchase of Petro-Canada.
Canadian Oil Sands has plunged along with oil prices, forcing it to slash its dividend several times in recent years. The former income trust, a class of securities that paid high dividends until their tax advantage was removed by the Canadian government, pays a dividend of 5 cents a share, down from as high as C$1.25 a share in 2008. The stock had dropped 41 percent this year through Friday, compared with a decline of 4 percent for Suncor.
Suncor’s unsolicited offer is surprising because hostile bids are uncommon in Canada and it comes before many were expecting mergers and acquisitions to pick up, said Martin Pelletier, managing director and portfolio manager at TriVest Wealth Counsel Ltd. in Calgary. With Canadian Oil Sands trading above its offer price, a rival bid appears expected, Pelletier said.
“If oil prices go back to $60 there’s plenty of room for that,” said Pelletier, who bought Canadian Oil Sands shares recently betting on a takeover and is in the money on the stock’s gain. “Everything’s on the table when you do a hostile like this. Canadian Oil Sands is going to look at everything.”
