Canadian oil giant Suncor Energy launched an unsolicited $4.3 billion (US$3.3 billion) all-stock offer for oil sands producer Canadian Oil Sands. Suncor's takeover move comes amid consolidation in the oil sands industry in western Canada, hammered by the fall in oil prices.MARK RALSTON/AFP / Getty Images
Canadian Oil Sands Ltd. is accusing Suncor Energy Inc. of buying support for its $4.3-billion hostile takeover bid, as the largest Syncrude owner seeks more time to drum up a richer offer.
In a red, bold-lettered "warning" sign posted on its website, Canadian Oil Sands says Suncor is paying brokers to get Canadian Oil Sands' investors to tender their shares – a strategy it says shows Suncor's bid is "exploitive" and "opportunistic."
"Knowing the weakness of their bid, they feel it is necessary to pay brokers and incentivize them to encourage clients to tender their shares," the notice reads.
"We don't think that's right. We think our shareholders should decide for themselves, free from the influence of brokers being financially compensated to do Suncor's work for them."
Canadian Oil Sands is drawing attention to the fees in the latest defensive tactic designed to thwart the takeover bid with just more than three weeks to go before Suncor's offer expires.
Under the arrangement, Suncor is offering 5 cents a share to brokers whose clients own at least 300 Canadian Oil Sands shares, with a minimum fee of $75 and a maximum of fee of $1,500, according to the Canadian Oil Sands notice and materials sent to brokers that were seen by The Globe and Mail.
Suncor retained J.P. Morgan Securities Canada Inc. and Canadian Imperial Bank of Commerce as soliciting deal managers.
So-called solicitation fees are a common way to compensate brokers for reaching retail shareholders in Canadian takeovers, a Suncor spokeswoman said. They have been used by Mexico's Alfa SAB in its failed takeover attempt of Calgary-based Pacific Rubiales Energy Corp. and also featured in Goldcorp Inc.'s abandoned hostile bid for Osisko Mining Corp., Sneh Seetal, the Suncor spokeswoman, said in an e-mail.
"It is otherwise very difficult for companies making offers to get their materials in front of retail shareholders," she said. Suncor says in materials circulated to brokers that no fees will be paid for common shares beneficially owned by institutional investors or in the event the offer is not completed.
Canada's dominant oil sands producer launched its hostile takeover for Canadian Oil Sands in early October after two friendly approaches were spurned last spring.
It is offering 0.25 of one of its shares for each Canadian Oil Sands share in an attempt to boost its stake in the Syncrude Canada oil sands project to 49 per cent from 12 per cent currently.
Canadian Oil Sands, the project's biggest owner with a 37-per-cent stake, has rejected the all-share offer and instituted a shareholder rights plan that requires bids to be open for 120 days. Suncor's bid expires after 60 days on Dec. 4.
A hearing before the Alberta Securities Commission is set for Nov. 26 to determine the validity of the rights plan, which gives the bid target's board more time to search for a rival offer.
Canadian Oil Sands chief executive officer Ryan Kubik has cited interest from third parties that could lead to an alternative deal, although he has cautioned such discussions are in their early stages.
Canadian Oil Sands insists Suncor is exploiting undisclosed information to increase its ownership in the Syncrude project at a fraction of what the assets are worth. The operation has suffered from successive breakdowns and repeatedly missed production targets in recent years, and Suncor has warned its target risks being left without an offer.
Aaron Atkinson, a partner in the Toronto offices of Fasken Martineau LLP, said it is not unusual for companies launching hostile takeovers to use solicitation fees to reach the target company's shareholders.
"I wouldn't say it happens in all cases, but dealer solicitation arrangements, the legislation contemplates you can have them, as long as you disclose," he said in an interview.
"Put it this way: If you were on the target side, it wouldn't be surprising that you might make that allegation, the argument being their bid's clearly not good enough because they have to pay brokers to get the shares tendered."