Suncor courts shareholders as Canadian Oil Sands seen nixing bid

DAVID SCANLAN and JEREMY VAN LOON

NEW YORK (Bloomberg) -- Suncor Energy Inc. expects Canadian Oil Sands Ltd. to reject its C$4.3 billion ($3.3 billion) hostile takeover, so it’s striving to convince shareholders of the merits of the deal, CEO Steve Williams said.

“That wouldn’t surprise me at all. I would anticipate that their first reaction would be to reject,” Williams said in an interview at Bloomberg headquarters in New York on Tuesday. Asked if Suncor plans to raise the bid made Monday, he said, “No, I think one of our strategies is that we have made a full and fair offer.”

Suncor, Canada’s largest crude producer is taking advantage of a prolonged oil rout to renew its effort to take over the biggest shareholder of the Syncrude venture in northern Alberta after two friendly offers were turned down earlier this year. Shares of Canadian Oil Sands, which said it would review the proposal, surged as much as 58% in Toronto on Monday to trade above the offer price. Suncor would need support from at least two-thirds of the shareholders.

The price of 0.25 Suncor shares for each in Canadian Oil Sands was “a little light,” according to one of the target company’s largest shareholders.

‘Ride Back Up’

“I hate owning a company that’s very levered to a commodity that goes all the way down, and then gets taken out at the bottom so I don’t get the ride back up,” said Doug Warwick, managing director of TD Asset Management, which owns almost 5% of Canadian Oil Sands through its mutual funds. Warwick said he’s consulting with advisers as well as Canadian Oil Sands management before deciding whether to sell to Suncor.

Canadian Oil Sands is expected to turn down the offer, according to a person familiar with the Calgary-based company’s thinking who asked not to be identified because the matter is private. While also expecting the rejection from the company, Suncor is meeting with shareholders from San Francisco to Boston to Toronto to seek to win them over, Williams said.

Shares of Canadian Oil Sands pared the price surge that followed the bid, falling 3.3% to C$9.28 in Toronto on Tuesday. Suncor rose 0.8% to C$34.87.

Syncrude Venture

Suncor’s offer would boost its share in Syncrude to 49%, giving it almost twice the stake of the next-biggest holder, Imperial Oil Ltd., which is majority owned by Exxon Mobil Corp. With the capacity to process bitumen from the oil sands into 350,000 bpd of light oil, Syncrude is the largest single-source producer in Canada.

Imperial Oil, with its 25% stake in Syncrude, is the other “natural bidder,” Williams said on Monday, adding that Suncor has an advantage over Imperial because of the proximity of its Millennium mine to Syncrude’s operations. Suncor has no plans to become the operator of Syncrude and would work with partners to lower costs, Williams said.

“We are going to work very hard to win over shareholders,” Williams said. It’s “too early to quantify support.”