The agreed bid was only slightly higher than Suncor’s previous offer, and still below an informal bid of 0.33 of a Suncor share that COS dismissed in April.Todd Korol
Canadian Oil Sands Ltd. has portrayed its newly friendly takeover agreement with Suncor Energy Inc. as a victory for shareholders.
Given how far the overall market has fallen in the months since Suncor made its initial bid, and how rancorous the battle was, cheering among investors may be muted.
In the deal announced Monday, COS shareholders will get 0.28 of a Suncor share for each of their shares, which is a 12-per-cent bump from Suncor's previous 0.25-for-one ratio offered in early October.
The agreed bid was only slightly higher than Suncor's previous offer, and still below an informal bid of 0.33 of a Suncor share that COS dismissed in April.
The energy world is quite different now. West Texas intermediate crude sold for more than $45 (U.S.) a barrel when Suncor launched its bid. It has since slumped to less than $29, and many analysts expect further weakness for much of this year.
Virtually no Canadian oil producers make money at the current price, giving COS more than enough impetus to agree to friendly terms, even if they are not a lot more lucrative. This comes after months of tough talk and gibes from both sides, as well as newspaper ads seeking to bolster their positions.
Suncor reportedly made the initial approach to reach a détente last Tuesday, and the deal was hammered out through the remainder of the week.
In overall deal-price terms, little has changed. A slightly higher exchange will bring some future benefit, but how long it will take for COS shareholders to reap rewards from that is not known.
"It's effectively the same bid," said Nick Lupick, analyst at AltaCorp Capital Inc.
Initially, Suncor offered about $4.3-billion (Canadian) for the COS equity and estimated the debt at $2.3-billion, he noted. The friendly deal implied a COS share price of $8.74, very close to the initial offer.
"Today, they've essentially increased the offer price to offset some of the decline in the Suncor share price – obviously everybody has declined, given where the commodity has gone – and it essentially has taken the value back to $6.6-billion.
"Suncor has kept its dollar offer effectively unchanged."
COS chief executive officer Ryan Kubik had complained from the start of Suncor's hostile advance that the bid "substantially undervalued" its business, which consists of a 37-per-cent stake in the Syncrude Canada Ltd. oil sands project.
Suncor has 12 per cent of Syncrude, which has suffered from years of breakdowns and missed production forecasts.
In October, billionaire investor and large COS shareholder Seymour Schulich blasted Suncor's hostile bid for its "giveaway price." On Monday, the companies said he agreed to the revised offer.
Jeffrey Jones