COS management accepts Suncor’s sweetened hostile offer

TORONTO (miningweekly.com) – Despite the price of oil dipping to 2003 levels, Canadian oil sands major Suncor Energy on Monday announced that it has succeeded in swaying Canadian Oil Sands (COS) management to accept a sweetened C$6.6-billion offer for the company.

The offer, which was extended to 4:00 pm Mountain Time, would provide Suncor with COS’s 37% interest in synthetic crude oil major Syncrude which, combined with its 12% stake, would provide Suncor with a controlling interest in the operation. Located north of Fort McMurray, this was one of the largest oil sands operations in Alberta’s oil patch.

Under the terms of the revised agreement, which received support from both companies’ boards and chief investors, Suncor increased its offer to COS shareholders to 0.28 of a Suncor share for each COS share, representing a total transaction value of about C$6.6-billion, including COS's estimated debt of C$2.4-billion. The initial offer was for one-quarter of a Suncor share for each share tendered, for a deal valued at about C$4.3-billion.

Suncor would get access to COS’s upgrader and 1.6-billion barrels of reserves. It would also be afforded an opportunity to develop Syncrude’s Lease 29, which was closely located to its existing operations and would provide replacement for its North Steepbank mine, which was nearing the end of its life. 

The amended offer hinged on a reduced condition that 51% of COS shareholders tender their shares, down from the previous requirement of 66%.

The agreement brought to a close months of back-and-forth arguments for and against the hostile offer, with COS saying that Suncor’s offer was opportunistic and did not adequately value the Syncrude assets.

COS had the right to consider superior proposals from other parties, subject to Suncor’s right to match any such proposal and for a C$130-million break fee payable by COS to Suncor in certain circumstances if the offer was not completed. Shareholders who tendered by the expiry date, assuming the amended offer conditions were satisfied on that date, would be entitled to receive Suncor's first-quarter 2016 dividend, expected to be paid in late March.

COS stock rallied by more than 16% on Monday to C$8.70 apiece, while that of Suncor fell about 4% to C$29.99 apiece. The US-benchmark crude oil price on Monday traded at $29.02/bl – down 7% – while Brent crude fell to a significant discount to West Texas Intermediate at $28.74/bl, as US and EU economic sanctions on Iran were lifted over the weekend, paving the way for the country to unload millions of barrels of crude in storage onto an already oversupplied global market.