Suncor Energy Inc. will let its $4.3-billion takeover bid for Canadian Oil Sands Ltd. lapse unless regulators strike down the target company's unusual shareholder rights plan, a senior executive said on Thursday.
In an escalating war of words between the two Syncrude Canada Ltd. partners, Suncor's financial adviser said abandoning the offer would knock as much as $1.5-billion of value from Canadian Oil Sands (COS) as investors flee.
The Alberta Securities Commission is hearing arguments for and against Canadian Oil Sands' shareholder rights plan, which has an unusually long 120-day period for the management and board to attract and review potential rival bids.
Suncor's all-share hostile bid is due to expire on Dec. 4, and it has blasted the lengthy review period in its target's "poison pill" as a stalling tactic.
At the hearing, a Canadian Oil Sands lawyer asked Steve Reynish, Suncor's executive vice-president of strategy and corporate development, whether Suncor would extend the offer if the commission affirmed the shareholder rights plan.
"No, it will not," Mr. Reynish replied.
Suncor's stand raises the stakes on the securities commission ruling, which could come as early as Friday. It could spell the end of one of the richest oil-patch deals in years should the commission affirm the poison pill.
Such a decision would push Canadian Oil Sands stock into a tailspin, Suncor has argued. If the commission invalidates the poison pill, however, the takeover offer would likely go to Canadian Oil Sands shareholders for a vote.
Canadian Oil Sands has the largest interest in Syncrude at 37 per cent. It has decried Suncor's unsolicited bid as opportunistic, preying on the company amid heightened political and regulatory uncertainty in Alberta and with crude prices now in their second year of a sustained rout.
It also suggests Suncor has an unfair advantage over any other suitor, given its own familiarity with the Alberta oil sands mining and synthetic crude project. Suncor has a 12-per-cent stake in the venture.
In its submissions to the securities commission, Suncor sought to dispel the notion that Canadian Oil Sands needs more time to study possible competing offers and reiterated its view that the target faces a precarious financial future as oil prices slump.
Canadian Oil Sands said Wednesday it had held talks with 25 parties and signed confidentiality agreements with four unnamed groups it called "highly credible," and that potential acquirers needed more time to study the company's operations.
In testimony Thursday, a Canadian Oil Sands director also said it's important that prospective bidders have time to fully understand Alberta's evolving regulatory landscape and its impact on the value of Syncrude. This week, the province introduced a new climate framework that includes a cap on carbon emissions from the oil sands. It is also reviewing oil and gas royalties.
However, Suncor has questioned the level of support among Canadian Oil Sands shareholders for the company's defensive stand. It argued 60 days provides ample time to review its offer, and said any rival bidder would have emerged by now.
"Merely being contacted, or merely having a discussion, does not make a party a potential acquirer," it said in an affidavit.
"It is also notable that only one party has participated in, or indicated an interest in participating in, a management presentation. No evidence has been presented to indicate that any of these parties are close to providing any sort of binding proposal or commitment."
Should Suncor abandon its hunt, Canadian Oil Sands shares could fall back to below $6 a share, given that crude prices have skidded 10 per cent since the bid was launched in early October, said JPMorgan, Suncor's financial adviser. "Absent an alternative offer, there would no longer be any takeover premium embedded in the price of COS Shares. This would imply a potential loss of over $1.5-billion in COS shareholder value," the investment bank said.
The securities commission said it did not yet know when it will rule on the case.