The chief executive officers of Suncor Energy Inc. and Canadian Oil Sands Ltd. both say they've got votes on their side as the nation's top crude producer promotes a hostile takeover bid for its smaller rival. One of them is going to be disappointed.
Ryan Kubik, the Canadian Oil Sands CEO, said in an interview Thursday that shareholders, big and small, aren't being wooed by the $4.5-billion ($3.4-billion U.S.) unsolicited offer from Suncor, which the board rejected. His comments come a day after Suncor's Steve Williams said in an interview that he expects major shareholders to back the deal.
Suncor is seeking to take advantage of an industry downturn to get even bigger, in part by making purchases including Canadian Oil Sands, the largest owner of the Syncrude mining project in northern Alberta. Both companies are trying to cut costs to remain profitable amid a crude price slump that has lasted 17 months and cost the Canadian energy industry more than 36,000 in lost jobs.
"The vast majority of major shareholders I'm talking to are saying that the Suncor offer is substantially inadequate," Kubik said on Bloomberg TV Canada from Calgary, where the two companies are based. "When we poll the retail shareholders, and I get e-mails from those retail shareholders, they're telling us the same thing."
Shareholders are conveying the opposite view to Williams, according to the executive. In the first 10 days after the offer was made public, Williams and Suncor's management met with 60 per cent of the Canadian Oil Sands' institutional shareholders, he said.
"The messages I got were very different than the messages they are talking about," Williams said at Bloomberg's Toronto office. "The majority say they will tender."
The offer is for 0.25 of a Suncor share for each Canadian Oil Sands share. Based on Suncor's stock price Thursday, that represents a 50 per cent premium over the Canadian Oil Sands price before the bid was announced last month. Suncor would also take on the $2.35-billion of Canadian Oil Sands debt, as of the end of the third quarter.
The premium has risen from an initial 43 per cent as falling crude prices hit Canadian Oil Sands' stock harder. The company's shares have dropped 16 per cent this year, compared with a 0.6 per cent gain for Suncor.
While Canadian Oil Sands shares traded 9.9 per cent higher than the Suncor offer when it was first announced on speculation another buyer would emerge, now the bid is worth 5.4 per cent more than the target company's stock, based on Thursday's closing prices. If no takeover of Canadian Oil Sands happens, the company's stock is poised to plummet, said Martin Pelletier, managing director and portfolio manager at TriVest Wealth Counsel Ltd. in Calgary.
"The trading is telling you investors are worried the deal isn't going to go through," said Pelletier, who bought Canadian Oil Sands shares earlier this year betting on a takeover bid, and sold his stake to capture the gain after the Suncor offer. "The risk is just too great, with regard to the upside versus the downside. No one else has stepped up and we haven't seen a higher offer from Suncor."
Last week, Suncor appealed directly to Canadian Oil Sands shareholders in a letter warning that if they don't accept the bid, they risk continuing to own shares in a company that has demonstrated "consistently disappointing performance." Suncor's offer is "full and fair" and would allow the company to devote more resources to improve the Syncrude venture, according to the letter. Seven companies including Canadian Oil Sands and Suncor own Syncrude, and the merger would give Suncor a 49 per cent stake, up from its current 12 per cent.
Canadian Oil Sands is resilient at current prices and can cover costs with U.S. crude at $45 a barrel, Kubik said Thursday.
The Alberta Securities Commission is expected to uphold Canadian Oil Sands' new shareholder rights plan after hearing Suncor's appeal on Nov. 26 to strike down the so-called poison pill, Kubik said. Suncor's bid isn't permitted unless it's extended, Canadian Oil Sands said last month in introducing the new plan that calls for 120 days to consider bids. Suncor's offer is open for acceptance until Dec. 4.
The board of Canadian Oil Sands continues a strategic alternatives process in which it's talking to other potential bidders, Kubik said.
"We do have interest from other parties in that process," he said, declining to give details. "All alternatives are going to be reviewed."
Williams said there is a "reality check" going on in the oil patch, where sellers are being forced to recognize the price they think their assets are worth is no longer the case in a low oil price environment.