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Suncor Energy Announces C$4.3B Bid for Canadian Oil Sands

The wave of mergers has traveled far and wide across the energy sector. The latest one to join the growing trend of mergers is Canada's biggest energy firm and the largest oil sands outfit Suncor Energy Inc.SU . The firm has made an unsolicited offer to Canadian Oil Sands LimitedCOSWF to buy all the outstanding shares of the latter. The deal is valued at approximately C$4.3 billion. The deal would also entail the assumption of Canadian Oil Sands' outstanding debt of about C$2.3 billion as of Jun 30, 2015.

Shares of Suncor Energy fell about 1.5% post this announcement. However, Canadian Oil Sands' stock, which trades on the Toronto Stock Exchange, surged over 55% on the news.

Offer Terms

Per the proposal, Canadian Oil Sands' shareholders will receive 0.25 Suncor shares for each share they hold. The offer represents a 43% premium based on the closing prices of Canadian Oil Sands and Suncor as on Oct 2.

Canadian Oil Sands has till Dec 4, 2015 to accept the offer unless the bid is extended or cancelled. The deal requires approval from two-third of Canadian Oil Sands' shareholders.

Offer Benefits for Canadian Oil Sands

Apart from being merged with the leading Canadian integrated energy company, the offer would give Canadian Oil Sands shareholders an opportunity to benefit from Suncor's growing dividends. Acceptance of the offer would mean a 45% dividend growth for Canadian Oil Sands shareholders.

What's in it for Suncor Energy?

The deal would enable Suncor to further expand in the region. Acquiring Canadian Oil Sands would substantially increase Suncor's holding in the Syncrude project. The deal would increase the firm's ownership in the project to about 49% from the current stake of just 12%. The Syncrude project, a joint venture between seven companies, is the leading producer of synthetic crude oil from the oil sands.

Notably, Suncor had approached the company in March this year but was turned down. Per media reports, Canadian Oil Sands is likely to reject the offer again. Suncor had then offered 0.32 shares for each Canadian Oil Sands share, much higher than the current bid.

More Bidders on the Way?

The weak crude pricing environment has affected Canadian Oil Sands' shares, making it an attractive takeover target. The market is ripe with speculations that Suncor's unsolicited offer could start a bidding war. Imperial Oil Ltd. IMO , which owns 25% in the Syncrude joint venture, could be a potential bidder.

Other parties in the Syncrude joint venture are China's Sinopec and CNOOC Ltd. with about 9% and 7% stakes, respectively. Mocal Energy and Murphy Oil MUR hold 5% each. However, Imperial Oil remains the most logical buyer.

A major Canadian Oil Sands shareholder, who owns a 5% stake in the company, does not find the bid to be an attractive one.

Zacks Rank

Currently, both Suncor Energy and Canadian Oil Sands carry a Zacks Rank #3 (Hold).

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MURPHY OIL (MUR): Free Stock Analysis Report

SUNCOR ENERGY (SU): Free Stock Analysis Report

IMPERIAL OIL LT (IMO): Free Stock Analysis Report

CDN OIL SANDS (COSWF): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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