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A bid for control of a private company would normally go unnoticed. But these aren’t normal times and this isn’t your usual private company.

A Calgary-based financier’s attempt to buy a majority of the shares in Osum Oil Sands Corp. has spilled out into the open, and the company isn’t happy about the situation.

Last week, it released a circular spelling out why it believes its investors should take a pass on the $126-million offer from private equity firm Waterous Energy Fund. Contained in it are several points that show how the COVID-19 pandemic has complicated an already difficult deal-making environment in the oil game. For the bidder, the downturn has created opportunity.

WEF, run by former investment banker Adam Waterous, has offered to pay Osum’s investors $2.40 a share for a 40-per-cent stake. The shareholder base includes a few big players and many small ones. The offer follows WEF’s acquisition last summer of 45 per cent of the company from three institutions – Warburg Pincus, Blackstone and Singaporean sovereign wealth fund GIC – at the same price.

Mr. Waterous has positioned his fund as a rescuer of oil companies that have fallen on hard times and are in need of refinancing, repositioning or restructuring. The search for so-called special situations yielded its acquisition of Pengrowth Energy Corp. early this year at a fraction of what it was worth in its heyday.

From Osum’s perspective, it doesn’t need rescuing, especially at a price it sees as lowball. Its special board committee says the bid seeks to take advantage of the weak energy market created by the pandemic and does not offer any premium for the control that WEF would gain. In addition, the company has a solid balance sheet, top-quality producing assets and is under no pressure to sell, it says.

WEF is upfront about what it wants. The fund, which already has four of the nine board seats, wants to gain more influence over the company’s operations and planning, and has a deal in its back pocket to sell a royalty interest in Osum’s production to another industry player.

With oil prices under pressure, WEF said early this month, the offer provides “full and fair value” for the shares. Also, the five next largest shareholders owning 19 per cent of the company have signed lockup agreements supporting the WEF bid, it says. Mr. Waterous says that the pandemic is not a factor in the bid, and that he takes a long-term view of the assets.

A lot has gone on already. Last year, Osum, chaired by veteran oil man Bill Friley, entertained the idea of seeking a buyer, and had gone through the process of arranging for financial advisers. In February, 2020, before the effort kicked into gear, the company received a nonbinding $2.50-a-share proposal from two companies to acquire its operations, which are located near Cold Lake, Alta.

The following month, global lockdowns began and oil prices tumbled. The bidders walked away and Osum decided to put its sales process on hold.

In late March, WEF approached one of Osum’s shareholders with a proposal to buy the company for 75 cents a share, plus a contingent payment of 5 cents for every dollar that Western Canada Select heavy oil averaged above $35 a barrel between the closing date and the end of this year. With the markets in turmoil, the Osum board decided against proceeding with talks.

WEF subsequently began discussions to gain the 45-per-cent stake. As that got under way, Osum’s board again discussed the idea of trying to sell the company, according to the circular. The stumbling block proved to be Calgary-based Azimuth Capital Management, a shareholder that has the right to sign off on any change of control as long as it owns at least 10 per cent. Azimuth, which counts former prime minister Stephen Harper as a senior adviser, signalled it was not prepared to waive that right with volatility roiling the markets.

This is also a hurdle for WEF with its latest offer. According to Osum, no unsolicited bid can be successful without Azimuth agreeing to it. It would, however, support a new process to seek a higher offer for the company. Of course, the stumbling block there is WEF, with its 40-per-cent stake.

Adding to the intrigue, oil prices have rallied since WEF launched its bid in early November, giving investors hope that the market will afford more value. There well could be more give-and-take before this is all over.

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