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Suncor Extends Expiration Date after Unsuccessful Initial Attempt

Canadian Oil Sands (ticker: COS) gets its wish to remain an independent company – at least for the time being.

The hostile takeover attempt by Suncor (ticker: SU) failed to achieve the required approval of two-thirds of COS shareholders, as the deadline passed on January 8, 2016. The major integrated oil company, with a market capitalization of more than $32 billion, was offering a total of $5 billion including debt (CN$6.6 billion) in a proposed stock-for-stock acquisition of Canadian Oil Sands.

Suncor tried to entice COS shareholders by highlighting the stability of a large-scale company and a shareholder return program, including a dividend that was 45% higher than that of COS. Rebuttals from Canadian Oil Sands call the offer opportunistic, saying COS shares are closely correlated to the price of crude oil and will quickly rebound in turn with the eventual commodity upswing. COS also says the Syncrude project, of which it has the largest interest of any operator, has moved past the development stages and is now positioned for a period of lower operating costs.

In response to the news, SU extended the offer to January 27 but did not change the terms of the proposed deal.

Round Two: Will Anything Change?

Neither company offered specifics on shareholder feedback in separate statements. COS said its shareholders rejected the bid in “overwhelming” fashion. In a four-sentence press release from SU, the company said it was “encouraged by the number of shares that have been tendered” and included details on the offer extension. COS criticized Suncor’s announcement, calling on the company to disclose the exact amount of tendered offers as required by law.

A source of Reuters said more than 40% of COS shareholders approved the deal, falling short of the required two-thirds approval. Bloomberg says anywhere from 40% to 50% of shareholders green-lighted the takeover. However, some of COS’ largest stakeholders have spoken against the deal. Seymour Schulich owns 5% of the company and called the bid “ridiculous” in an interview last year with the Financial Post. His rhetoric was equally pointed in an interview last week with Bloomberg.

Predictably, analysts speculated that Suncor will have to increase its offer price in order to be successful in its nearly one-year pursuit of COS. However, Steve Williams, Chief Executive Officer of Suncor, said in November that there are “no plans” to increase the bid and reiterated his stance on the proposal being “full and fair.” His belief, only in a literary sense, loosened slightly in a recent interview with The Wall Street Journal. “It’s highly improbable,” he said in regards to raising the bid, “(but) I wouldn’t rule anything completely in or out.”

Part of Williams’ reasoning could be in regards to the declining value of COS shares. The bid represented a 14% premium last week, significantly less than the 43% premium of closing prices on October 2. As evidenced by the chart on the right, the value of COS has gradually declined as the merger battle escalated.

Canadian Oil Sands has also opened itself up for other offers, but no bids have been publicized to date. SU asserted in December that “there is no evidence a better offer will emerge for COS.”

Samir Kayande, an analyst for ITG Investment Research in Calgary, told Business News Network that he was puzzled by Suncor’s decision to continue its pursuit of Canadian Oil Sands. “COS is right now burning cash and will continue to do so in the absence of an oil rebound,” he said, adding that any changes in price could be perceived in a negative light. “I think increasing the bid price, given that no superior offer is coming, would send a negative signal to the market about Suncor’s portfolio of investment opportunities.”

Bradley Freelan, a partner at Fasken Martineau (a law firm specializing in mergers and acquisitions), speculated that SU may be discussing possible terms with COS shareholders who did not tender in favor of the original bid. “They may as well just extend and figure out what they want to do next, perhaps increase the price and then see what kind of support they can get with perhaps a higher price,” he said in an interview with The Province.

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