CALGARY -- Suncor Energy is looking to grow its position as Canada's dominant oilsands producer -- and take advantage of a prolonged rout in crude prices -- with a hostile bid to take over Canadian Oil Sands Ltd., the largest partner in the massive Syncrude mine.
Suncor (TSX:SU) is offering $4.3 billion in its own stock and would take on about $2.3 billion in COS debt, bringing the total price tag to $6.6 billion.
Suncor and Syncrude have the oldest operations in the oilsands, with side-by-side mines north of Fort McMurray, Alta. COS has a 37 per cent stake in Syncrude and Suncor has a 12 per cent stake, meaning Suncor would own just under half of Syncrude if it successfully gobbles up its target.
Suncor CEO Steve Williams said his company made overtures to COS earlier this year in the hopes of inking a friendly deal, but was rebuffed by its board. The unsolicited offer announced Monday requires that two-thirds of COS stock be tendered to Suncor by Dec. 4.
"Our clear preference was to work together on a co-operative negotiated deal," Williams said in an interview.
"We approached them twice, once in March, once in April, and were told that there was no interest at that time," he said.
"So I felt that the only option open to me, because I do think that this is a compelling offer, was then to go directly to shareholders."
COS said it's reviewing the Suncor offer with its advisers.
"Shareholders are urged not to take any action or make any decision with regard to the Suncor offer until the board has had an opportunity to fully review the Suncor offer and to make a recommendation as to its merits," it said in a release.
COS shareholders would have got a better deal if the company had accepted Suncor's earlier offer -- $11.84 as of March 31, according to a filing to U.S. regulators, versus $8.84 based on Suncor's closing price on Friday.
Williams noted crude prices have dropped 17 per cent since its friendly approach, languishing below US$50 for several weeks.
Brompton Group portfolio manager Laura Lau says COS is likely holding out for a better offer to emerge.
The logical "white knight" would be ExxonMobil-controlled Imperial Oil (TSX:IMO), which owns 25 per cent of Syncrude and manages its day-to-day operations, Lau said. "I'm sure Imperial-Exxon have sharpened their pencils."
Imperial spokesman Pius Rolheiser said the company doesn't comment on market speculation.
Lau said she doubts the two Chinese-controlled firms with Syncrude stakes -- Sinopec, with nine per cent, and CNOOC-owned Nexen, with seven per cent -- would have much of an appetite to grow their share, given Ottawa's hurdles to foreign state-owned investment in the oilsands. Mocal Energy and Murphy Oil each have five per cent interests in Syncrude.
John Stephenson, CEO of Stephenson & Co Capital Management, said he doubts Imperial is keen on topping Suncor's offer, and COS shareholders would be wise to take what's on the table.
During the last oil industry downturn in 2009, Suncor also went shopping, absorbing Petro-Canada in a blockbuster deal.
This time around, the mergers and acquisition front has been relatively quiet, with buyers and sellers failing to see eye to eye. One exception has been Suncor's recent plan to purchase an additional 10 per cent stake in the under-construction Fort Hills mine from partner Total for $310 million.
Stephenson said he's expecting more deals to follow in the oilpatch, with big and financially strong players picking off their weaker counterparts.
"The bigger will get bigger and the stronger will get stronger."
