Photo by: Bloomberg
TORONTO (miningweekly.com) – Suitor Suncor Energy has written an open letter to shareholders of reluctant takeover target Canadian Oil Sands (COS), advising that “hope is not a strategy” when it comes to surviving the prolonged downturn in crude oil prices.
“We don’t think hope is an appropriate strategy for COS. Why? While no one has a crystal ball when it comes to oil prices, the current market outlook doesn’t see oil prices getting back to $60/bl until at least 2020,” Suncor CEO Steve Williams wrote to COS shareholders.
Suncor had, on October 5, launched a C$4.3-billion hostile takeover bid, which the COS board had rebuffed, urging shareholders not to tender any shares to the offer. COS had stated that Suncor had made a bid that was substantially undervalued, obviously opportunistic, and exploitive.
Under the terms of the offer, each COS shareholder would receive one-quarter of a Suncor share, or about C$8.84, for each share tendered. Including COS's estimated outstanding net debt of $2.2-billion, as at September 30, the transaction was valued at about C$6.6-billion when it was first launched.
However, owing to a 10% increase in Suncor’s TSX-listed share price since the offer was made, the deal was deemed more than C$400-million more valuable at current prices.
In his letter, Williams noted that COS shares had been trading at round C$10 apiece.
“Doing nothing carries the very real risk that Suncor’s offer goes away and the value of your shares could fall back towards their pre-bid level of just over C$6 a share and you lose the opportunity to capture a potential 57% premium to the COS pre-offer price.
“Should that happen, you will be left holding shares in a company which has demonstrated negative free cash flow, about C$2.3-billion in debt that is already just one notch above ‘junk’ status, and a strategy based almost entirely on hope. Hope that oil prices will rise and hope that Syncrude will sort out its ongoing operational challenges,” Williams charged.
COS held a 36.74% stake in one of the largest oil sands operations north of Fort McMurray, Alberta, and Suncor owned 12%.
Suncor accused COS of having consistently overpromised and underdelivered on Syncrude’s performance, saying it had failed to hit production targets for four years in a row.
COS was also blamed for allegedly misleading shareholders about the challenges it was facing – and about Suncor’s offer.
Meanwhile, a notice on the COS website accused Suncor of paying brokers to get shareholders to tender their shares to the hostile bid.
"Knowing the weakness of their bid, they feel it is necessary to pay brokers and incentivise them to encourage clients to tender their shares.
"How much are they paying? If you have at least 300 shares, Suncor may be paying your broker a fee of $0.05 a share with a minimum fee of $75 and a maximum fee of $1 500. That money does not go to COS shareholders, it goes to their brokers.
"We don't think that's right. We think our shareholders should decide for themselves, free from the influence of brokers being financially compensated to do Suncor's work for them."