With Suncor Energy Inc.’s all-share offer for Canadian Oil Sands Ltd. set to expire Friday evening, Suncor CEO Steve Williams and his advisors will likely huddle over the weekend to plot their next move.
Suncor’s $4.13B hostile takeover of Canadian Oil Sands teeters as Friday deadline looms
Suncor’s takeover of Canadian Oil Sands looks far from certain, with the target’s share price trading at a record gap to the bid just a day before expiring
At stake is a $4.3-billion acquisition of COS and its key asset Syncrude Canada Ltd., in which Suncor already has a 12 per cent stake.
If Suncor manages to secure 66.67 per cent of Canadian Oil Sands shares by the deadline, the saga will be over. Poor interest in Suncor’s offer to buy COS shares at a 42 per cent premium of its price on Oct. 5, would likely scuttle the deal. But a scenario could emerge in which Suncor has more than 50 per cent of COS shares — one of several conditions of the offer — but fall short of its threshold target.
In a conference call with investors this week, Williams noted that while he is looking to secure two-thirds of the shares, “I will watch with very close attention as the tenders come in … We’ll make the judgment through the weekend, as to whether we believe we will be able to move to closing the deal out.”
Paul Davis, a lawyer with Toronto-based law firm McMillan LLP, said Williams’ comments suggest the CEO would extend the offer if he feels he is close to clinching the deal.
Suncor must secure 50 per cent of independent shareholders, which would blunt COS’s rights plan, or poison pill. The company could then extend the offer, and take the next step by squeezing out minority shareholders by calling a meeting.
“All you need then is two-thirds of the shareholders who actually voted,” Davis said.
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COS shares have been volatile over the past few days, falling nearly 10 per cent on Wednesday before rising half-a-per-cent to $7.51 Thursday, lower than Suncor’s offer of $8.82. COS share price could fall to $5 if Suncor walks away from the deal, Williams warned this week.
“I would take from that people expect it (Suncor’s bid) would fail,” said Bill Gula, mergers and acquisition lawyer at Hansell LLP in Toronto.
Suncor’s insistence on two-thirds of the COS shares is to ensure absolute certainty of squeezing out minority shareholders, said Chip Johnston, lawyer at Stikeman Elliott LLP in Calgary.
“Canadian rules permit a bidder — after a takeover bid closes, and bidders have acquired shares — to call a meeting of the shareholders to affect a process where the remaining shareholders receive the same consideration as offered in the bid,” Johnston said.
In a quarter of past cases, bidders end up with 50 per cent of the company, which allowed it to control the board, Johnston noted.
“In those hostile bids, you don’t have lock up, you don’t have the target management’s support, some times bidders have to work harder to accumulate the rest of the shares,” Johnston said.
But if Suncor waives the 66.67 per cent condition and extends the offer, it may run the risk of losing the COS shareholders that had already tendered their shares, as they will have the right to withdraw, Gula said.
“They could be back to square one, so to speak,” Gula said.
Apart from COS’s management and board, institutional investor Seymour Schulich has said he will not tender his five per cent of COS shares and is encouraging others to hold on as well. Bill Mason, who manages about 200,000 of COS shares at Value Financial Advisers Inc. in Denver, is also opposed to the deal.
Institutional investors may resort to exercising their “dissent rights” and go to court, but it’s likely a costly option, Davis said.
If Suncor secures more than 50 per cent, COS’s current management structure may find its own situation untenable.
“If I have 50 per cent of the vote, I am winning at every meeting so continuing the fight is silly,” said Davis, who has advised companies in the past in which boards refused to resign despite the bidder winning control of the company.
There have been a few recent instances in Canada in which hostile bidders ended up owning less than two-thirds, and then extended the offer multiple times to get to two-third of the shares and were ultimately successful in squeezing out the minority.
In 2013, First Quantum Minerals Ltd.’s $3.6-billion cash-and-share bid eventually worked with Inmet Mining Corp. shareholders, while Brookfield Renewable Energy Partners L.P.’s $169-million cash-and -share for WWE Equity Holdings Inc. also succeeded.
Retail investors are the wild card, especially as COS is seen as a widely held stock, but experience suggests Suncor may win the day.
“If you are playing the odds, if you look at four to five years in unsolicited bids, I suppose that the market would tender more than two-thirds. Your bet would be that,” Johnston said.