Canadian Oil Sands asks shareholders to reject Suncor Energy’s $3.2bn offer

Canadian Oil Sands (COS) has asked its shareholders to reject the C$4.3bn ($3.2bn) offer by Suncor Energy saying that the bid undervalues the company.

COS completed a full review of the offer and has determined that the bid is also not in the best interests of the company and its shareholders.

Canadian Oil Sands chairman of the board Donald Lowry said that the value offered substantially undervalues the COS ownership in Syncrude project in which it owns a 36.74% interest.

Other reasons cited by COS are that the timing of the Suncor bid is opportunistic, and it is exploitive too.

COS said that through its bid, Suncor is attempting to add the proved and probable reserves and 46 year production life of COS without paying a fair price.

In case the bid is successful, total reserves attributable to COS shareholders will fall by 55%, from 1.6 billion barrels of reserves to 0.7 billion barrels.

Suncor’s bid also does not reflect the inherent value and synergies of Syncrude’s assets as well as the potential to acquire operational control of Syncrude project., Canadian Oil Sands said.

According to COS, Suncor stated that its purchase of extra 10% interest in the Fort Hills project for about $56,000 per barrel per day of production was at a "discounted price".

Two weeks later, it offered to buy COS for an implied price of just $54,000 per barrel per day which represents a discount on a discount.

Responding to COS decision Suncor Energy president and CEO Steve Williams said: "Our offer reflects the new business reality, and when proposed, included a substantial price premium of 43% and a dividend increase of 45%.

"It also represents an opportunity for investment in a financially stronger, more diversified and stable company that has considerable upside potential in a rising price environment, but can also deliver significant value should oil prices stay lower for longer."

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Image: Suncor develops and produces natural gas in Western Canada. Photo: courtesy of Suncor Energy Inc.