Suncor CEO writes directly to Canadian Oil Sands shareholders in latest hostile-takeover move

​Suncor CEO Steve Williams released an open letter to Canadian Oil Sands shareholders today, urging them to accept his company's hostile takeover bid while they still can.

The move is the latest in Suncor's ongoing attempts to buy control of COS, which have so far been rebuffed as the smaller company has adopted a new shareholder rights plan, also known as a "poison pill" defence.

The matter went to the Alberta Securities Commission, which ruled in November that COS could keep its shareholder rights policy in place until Jan. 4.

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Suncor has extended its all-stock offer until Jan. 8 and, in his letter, Williams emphasized that time is running out for COS shareholders to act.

"Consider the facts, and take the simple steps needed to tender your shares to our offer now," he writes, noting the exact hour — 6 p.m. MT — that Suncor's offer will expire.

"If you 'do nothing' and our offer is rejected, you can expect the value of your shares to drop — sharply," Williams adds.

Suncor is offering 0.25 of its shares for each common share of COS which, based on Suncor's closing share price of $34.55 on Dec. 14, carries an implied value of $8.64 per COS share.

Suncor notes that's well above the COS closing price of $6.19 Oct. 2, the last trading day before it announced its hostile takeover bid.

COS stock prices have since risen, however, trading above $8 for most of the past week.

For its part, COS calls the bid "inadequate," "opportunistic," and "exploitive," telling shareholders Suncor is "offering far less that the long-term value of Canadian Oil Sands."

"Suncor is panicking as it is rapidly concluding what we already know: Shareholders are not interested in its offer," COS CEO Ryan Kubik said Tuesday in a statement, in response to Williams' letter.

"No amount of fear mongering will change that," Kubik added.

Oil rebound?

One of the key points to the valuation of the offer is how long oil prices will remain depressed.

COS argues that it's well positioned should there even be a small rebound in the market.

In an online plea — written before oil plunged to lows not seen since 2009 — the company urged shareholders to hold on.

"If West Texas Intermediate oil prices rise from $50 US per barrel to $65, cash flow from operations at Canadian Oil Sands more than doubles," the company states. "Even a modest increase in oil prices would be expected to significantly increase COS' free cash flow and ability to pay dividends."

Suncor, however, says its offer reflects the realities of the current world markets.

"COS simply can't deliver value in the current 'lower for even longer' oil price environment," Williams writes in his open letter.

"COS has demonstrated negative free cash flow, a credit profile one notch above 'junk' status, and has a single asset, Syncrude, that continues to underperform."

The role of Syncrude

The other key to this would-be deal is the enormous Syncrude oilsands mine north of Fort McMurray, in which both companies have a stake.

COS owns 37 per cent of the venture and Suncor owns 12 per cent.

As a result, if the Suncor takeover bid succeeds, it would own nearly half the mine and further consolidate its dominant position in Canada's oilsands, overall.

The COS board believes that should demand a "premium price" for its shares, "not the discount Suncor is offering."

"Acquiring COS' interest — the largest in the joint venture — creates the potential to acquire control of Syncrude and its operations," the company has told its shareholders.