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Suncor Energy CEO Steve Williams said the board of Canadian Oil Sands had a more valuable bid from his company to consider last spring, but dismissed it without taking it to its investors.

MARK RALSTON/AFP/Getty Images

Suncor Energy Inc. is plotting a regulatory challenge to Canadian Oil Sands Ltd.'s new shareholder rights plan while pressing a case that its takeover target risks being left without an offer as time wears on.

Suncor chief executive officer Steve Williams said the board of Canadian Oil Sands had a more valuable bid from his company to consider last spring and dismissed it without taking it to its investors. Suncor launched the hostile $4.3-billion bid in early October.

"All I'm asking is – let the shareholders make the decision," Mr. Williams told The Globe and Mail in an interview at the company's Calgary head office. "I understand what the management and the board want. Why am I happier to go to their shareholders than they appear to be?"

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Canadian Oil Sands, Suncor's partner in the Syncrude Canada Ltd. project, has rejected the all-share offer, and instituted a shareholder rights plan that requires a bid to be open for 120 days. Suncor's bid expires after 60 days on Dec. 4.

The so-called poison pill takeover defence gives a bid target's board more time to search for rival offers. Canadian Oil Sands CEO Ryan Kubik said last week that there is interest among third parties that could lead to an alternative deal, but cautioned that the process is in its early stages.

Proposed new rules in Canada would push the period to consider a bid to four months from the current minimum of 35 days, meaning that the Canadian Oil Sands defence is a test case with the battered energy sector, which is ripe for a flood of deal action as oil prices languish.

Suncor has offered 0.25 of one of its shares for each Canadian Oil Sands share. Canadian Oil Sands has said the approach undervalues the company, and that Suncor knows that because it has intimate knowledge of Syncrude. If the bid is successful, Suncor's interest in the operation would jump to 49 per cent from 12 per cent.

"They had a 60-day rights plan, which was the extreme of Canadian rights plans, voted in in 2013. We prepared the bid and made the bid in complete compliance with that, and then the board sat after we made the bid and revised retrospectively. My view is that's not in the public interest," Mr. Williams said.

"So you can expect to see us challenge that at the appropriate time, and that day is rapidly approaching, and that will be heard by the Alberta Securities Commission."

As spelled out in bid materials, Suncor offered 0.32 of a share for Canadian Oil Sands in April, and the target dismissed it. Since then, crude prices have been largely stuck under $50 (U.S.) a barrel, and Canadian Oil Sands shares have slumped as prospects for a return to rising dividends dimmed.

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Mr. Williams said that if investors are unable to tender, Suncor could walk away after its deadline, which would likely trigger a collapse in the share price.

Unsolicited bids have been rare in the oil patch in recent years, but the severe downturn, now in its second year, may prompt more as companies with attractive assets come under increasing financial strain, analysts have said.

Last week, Canadian Oil Sands posted stronger-than-expected quarterly cash flow, evidence, Mr. Kubik said, that cost-cutting efforts at Syncrude are paying off.

"We're seeing strong performance. And guess what: Suncor's been sitting at the table looking at all those initiatives to drive that performance," he said in an interview. "They've been sitting there for years, looking at the detailed reliability plans that are being executed by Syncrude.

"They're looking to capture that value before it's recognized in the market for their own shareholders."

Both CEOs went on extensive road shows to meet with investors last month and, not surprisingly, they offer differing views of responses.

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Canadian Oil Sands says its shareholders are supportive of the lengthy bid period in the poison pill, which if triggered would allow existing investors to buy rights for new shares at a discount, making the offer far more expensive. It said investors understand that time is needed to level the playing field for other bidders, and that Suncor should be as interested in the assets after 120 days as they are after 60.

Mr. Williams said it is just a tactic to buy time in hopes oil markets will improve.

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