Suncor and COS: The art of the hostile takeover

Suncor's hostile takeover battle for Canadian Oil Sands (COS) has gotten nasty. Or at least nasty for Calgary's tight-knit oilpatch.

"Exploitative," "panic," and "desperate" are some of the terms that COS chief executive Ryan Kubik has thrown around, while Suncor's chief executive Steve Williams has poured scorn on the ability of COS executives to right the ship for investors, saying that simply hoping that oil prices go back up is poor corporate strategy.

Both companies operate in Alberta's oilsands, COS's one asset is a 37 per cent stake in Syncrude, the grandaddy of the oilsands mines. Suncor would like that asset, which would give it nearly 50 per cent of Syncrude, making it the dominant player in northern Alberta. It's offered a quarter of a Suncor share for each COS share, an offer that amounts to approximately $9 for each COS share, depending on the markets.

Hurling insults across town

The two companies have spent nearly three months hurling insults across the three blocks that separate their head offices. The rhetoric is pretty typical for a hostile takeover battle, in which both sides are trying to win the vote of investors big and small and the support of regulators. It's a dance that has a few key steps.

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"Whenever you have a hostile takeover, the company defending against it is trying to throw up all kinds obstacles, they both pull together teams of accountants and lawyers and advisers," said Ian Lee, an assistant professor in strategic management at Carleton University.

The poison pill

Two days after the takeover offer was launched by Suncor, Canadian Oil Sands made its first public countermove, adopting a shareholder rights plan, commonly knows as a poison pill. It said that any takeover offer had to be open for 120 days, and since Suncor's offer was only for 60 days, that made it invalid.

Of course, that wasn't the end of it, Suncor pushed the issue to a two-day hearing at the Alberta Securities Commission, where each side argued its case. COS said it had interest from no less than 25 possible suitors, four of which had signed confidentiality agreements in order to look at the books, two of which (at the time) had actually looked at the books.

The investors who've held the stock for long periods of time and have already absorbed the losses, they're tough, they have money, they don't need to run to the hills - Brendan Wood, Brendan Wood International

That message was partly for shareholders (and COS shares did jump at the time) but also for regulators.

"The regulator plays a key role," said Lee. "It's the referee in the hockey game, it calls the penalties and, as we know, there's a lot of judgment involved in these things."

That referee did the very Canadian thing and split the difference between the two companies, allowing the bid to be extended for a little more than 90 days, until Jan. 8, 2016, and attention turned to coaxing shareholders.

Hope is not a strategy

The week before Christmas, Steve Williams of Suncor wrote an open letter COS shareholders, tearing into the management of the company. The headline: Hope is not a strategy.

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Williams said the the key point was that COS executives own very few shares in the company, just a fraction of a per cent, implying that they aren't acting as shareholders because they have no skin in the game. It also suggested that the management team was making too much money for too little work. Ouch.

COS said Suncor was desperate, that it was fear-mongering, and that shareholders were not interested.

Money talks louder than words

More of COS's shares are owned by retail investors than by institutional investors, like pension or mutual funds, so those message are directed to both professionals and individuals who may trade on their own.

For months now, the consulting firm Brendan Wood International has been polling both retail and institutional investors to see which way they were going to vote. While most investors agree that COS's executives have not been doing a particularly good job, many investors both on the institutional and retail sides simply think the price is too low.

These are the people who bought 18 months ago, when shares were comfortably above $20 a share, as opposed to the roughly $9 on offer now.

"The investors who've held the stock for long periods of time and have already absorbed the losses, they're tough, they have money," said Brendan Wood in an interview.

"They don't need to run to the hills. Their attitude is give me fair value, not because of the rhetoric. They're the reason for the rhetoric."

Wood said that race is too tight to call right now. Suncor's offer closes Jan. 8, 2016.