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Calgary, Alberta • Suncor Energy Inc. wants shareholders of Canadian Oil Sands to weigh its $3.5 billion takeover offer closely and reject a strategy that relies on the "hope" of better performance.
Suncor appealed directly to Canadian Oil Sands shareholders in a letter Thursday after two offers earlier this year were rejected and last month's hostile bid was met with a poison-pill defense put up by its management and board. Suncor says it will devote more resources to fixing an oil-sands mining project co- owned by seven companies after it boosts its stake to 49 percent from 12 percent by taking over Canadian Oil Sands, the largest shareholder.
The battle over Canadian Oil Sands and its ownership of the bitumen mining operator Syncrude comes as the industry struggles with low oil prices that make most expansions too costly, and even some existing production unprofitable. Canadian Oil Sands says Suncor is paying brokers to push the deal and that higher prices will allow its shareholders to benefit more than they would owning Suncor stock.
"Hope isn't a strategy," Suncor said in the letter. "If you take your board's advice and 'do nothing,' you risk that Canadian Oil Sands' board and management will carry on as they do today, getting paid a significant amount of money to provide quarterly updates on what has been consistently disappointing performance of the company's single asset, over which it has little control."
Suncor, Canada's largest oil producer, is paying brokers 5 cents a share to help convince holders to back the takeover, Canadian Oil Sands said on its website.
"Suncor has made a bid that is substantially undervalued, obviously opportunistic, and exploitive," Canadian Oil Sands said. "Knowing the weakness of their bid, they feel it is necessary to pay brokers and incentivize them to encourage clients to tender their shares."
The offer is "full and fair" and provides a 57 percent premium over the pre-bid price for a stake in a "financially stronger, more diverse and more stable company," Suncor said. Canadian Oil Sands has a record of "underperformance, financial challenges," and vulnerability to low oil prices, Suncor added.
"Suncor is likely going to be the winning bidder because there are no other logical buyers," said Nima Billou, an analyst at Veritas Investment Research in Toronto, who recommends Canadian Oil Sands shareholders tender their stock. Canadian Oil Sands management is opposing the deal because they "don't want to be seen accepting a lower offer" after higher bids earlier this year, Billou said.
Suncor has asked Alberta regulators to strike down the target's new shareholder rights plan aimed at preventing its takeover. The Alberta Securities Commission will hold a hearing on Nov. 26 to consider the so-called poison pill adopted by the Canadian Oil Sands board last month. The hearing follows Suncor's application for an order to cease the new rights plan.