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Energy and Resources Alberta’s securities regulator gives COS shareholders breathing room

A truck drives past a Suncor Energy Inc. oil sands road sign near Fort McMurray on June 3, 2015.

Ben Nelms/Bloomberg

Alberta's securities regulator has given Canadian Oil Sands Ltd. shareholders more time to find a rival offer, but said it will strike down a rights plan ‎the company adopted to help thwart Suncor Energy Inc.'s $4.3-billion takeover – raising questions about whether Suncor would keep its bid on the table.

The Alberta Securities Commission said on Monday it would extend the period for Canadian Oil Sands shareholders to review the bid to Jan. 4 – less than the 120 days sought by the company to attract a competing offer, but four weeks beyond the Dec. 4 expiry date of Suncor's all-share bid.

"We accept that additional time after the end of this week will be useful and perhaps necessary for the process to do its work in the interests of COS shareholders," Stephen Murison, vice-chair of the commission, said at a hearing. "For that reason, we will not be cease-trading the new plan immediately."

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The decision puts the spotlight back on Suncor as it seeks to cement one of the richest and most contentious oil-patch deals of the year.

Last week, a top executive with the company explicitly said its offer would lapse if the commission upheld the takeover target's poison-pill defence. On Monday, a spokeswoman said the company is reviewing the decision to determine next steps.

Canadian Oil Sands claimed victory and said it would continue to "aggressively" examine alternatives, citing interest from "several" potential acquirers that are examining the company's operating and financial information.

Suncor launched the unsolicited play for its partner and the largest owner in the Syncrude Canada Ltd. oil sands project in early October, seeking to increase its stake in the aging plant to roughly 49 per cent, from 12 per cent currently.

The rare hostile deal sparked a war of words between Suncor chief executive officer Steve Williams and Canadian Oil Sands CEO Ryan Kubik. The target company's management and board framed the offer as a low-ball grab for assets at the bottom of the market and implemented a poison-pill defence to fend off the approach.

Last week, Canadian Oil Sands pointed to confidentiality agreements it signed with four unnamed parties and meetings held with two groups as evidence of broad interest from potential acquirers.

Financial advisers for the company argued that possible bidders needed more time to study the company's operations, and to get a handle on pending regulatory changes in Alberta.

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Suncor blasted the move as a stalling tactic and said the rights plan lacked support from Canadian Oil Sands shareholders – an argument the ASC dismissed.

Suncor also questioned the likelihood of a rival bid emerging, but the commission said it was convinced the marketing process might generate an alternative proposal.

The spat before the ASC was seen as a test case for proposed new takeover rules that would give target companies four months to review bids, up from the current 35-day minimum. It is not clear what impact Monday's ruling will have on the planned changes.

According to a recent study into Canadian hostile takeover bids by the law firm Fasken Martineau, the highest percentage of competing offers tend to surface 35 to 64 days after the initial bid. In fact, there are only two deals in the past decade where competition emerged after 90 days, said Aaron Atkinson, a lawyer with the firm who specializes in mergers and acquisitions.

"Oftentimes, it's right now that's the sweet spot when you'd expect someone to come in with a competing bid, so one would think the additional 30 days is sufficient time," Mr. Atkinson said.

The big question is whether Canadian Oil Sands would shut down its auction if Suncor pulls its bid, he said.

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Suncor has offered 0.25 of one of its shares for each Canadian Oil Sands share, representing a premium of 43 per cent when the deal was announced in early October.

Canadian Oil Sands' sole asset is its 37-per-cent interest in Syncrude, which has suffered repeated outages and missed production targets in recent years. Its shares have skidded about 13 per cent as of Nov. 27 on the Toronto Stock Exchange since the offer was made public, while Suncor is up about 6.3 per cent over the same period.

With files from reporter Jeffrey Jones in Calgary

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