Canadian Oil Sands rejects Suncor takeover by passing 'poison pill' plan

Canadian Oil Sands Ltd. has rejected Suncor Ltd.'s $4.3-billion takeover offer, and says it needs more time to consider any similar offers.

The oilsands company announced a "shareholder rights plan" on Wednesday that is "designed to ensure that [its] shareholders and the board have adequate time to consider and evaluate" any offers from another company to take over or merge with Canadian Oil Sands.

The key stipulation is the company, its board and shareholders need at least 120 days to consider any offers.

Suncor's offer doesn't qualify under those rules, as the takeover offer was only announced last week and is scheduled to expire two months later, in December.

The new shareholder rights plan would be triggered if anyone buys 20 per cent or more of COS. At that point, other shareholders in the target company can buy stock at a discount, making the acquisition less attractive to a hostile bidder.

In the investment community, such rights plans are known as "poison pills" because they are designed to make it harder to take over companies.

Syncrude up for grabs

In recent days, Suncor offered 0.25 shares for every share of Canadian Oil Sands. That would value Canadian Oil Sands at about $9 a share. This time last year, Canadian Oil Sands was valued at more than $20 per share.

COS's main asset is a 37 per cent ownership stake in the massive Syncrude oilsands development in Northern Alberta. Suncor owns 12 per cent so a merger of the two would put just under half of Syncrude in Suncor's hands.

In announcing the poison pill, Canadian Oil Sands said Suncor's public offer values the company at substantially less than a similar "non-binding expression of interest" that Canadian Oil Sands received in April from Suncor.

For its part, Suncor says it will go around the board and take its offer straight to shareholders.

"We're disappointed but not surprised by COS board's decision to adopt a new board approved shareholder rights plan in the face of our offer," CEO Steve Williams said in a statement. "This inappropriate defensive tactic limits the ability of COS shareholders to decide."

"With a 43 per cent premium to market price and investment in a company that has a strong track record of returning cash to shareholders, we're confident in the value our offer provides to COS shareholders."

Rival bid?

Despite the frosty reception from the Canadian Oil Sands board, many think this story is far from over. Other oil companies may come calling with an offer of their own, for example, which could kick off a bidding war.

There's been some speculation that U.S. oil giant Exxon could be interested because of its stake in Canada's Imperial Oil, which owns 25 per cent of Syncrude.

"There could be another bidder, but the list is very small," said Bill Harris, a portfolio manager at Avenue Investment Management in Toronto, who owns Suncor shares in some of the portfolios his company manages. "There's stress in the industry."

Harris says he's not surprised that COS adopted a poison pill to buy it more time. "This is mergers and acquisitions 101, it gives them breathing room," he said.

But, he said, he hopes that things don't escalate to the point where nobody benefits.

"There's no reason they couldn't bump it (up) a bit, but if you don't like it, then walk away," Harris said, referring to Suncor possibly sweetening its offer. "Our biggest concern is that they are disciplined about it."