Key things to know about Suncor's takeover deal

CALGARY -- Suncor Energy has reached a friendly takeover deal with Canadian Oil Sands after bumping up its all share offer by 12 per cent.

See Full Article

The company now is offering 0.28 of a Suncor (TSX:SU) share for each COS (TSX:COS) share, resulting in a $6.6-billion friendly deal between the two Calgary-based oilsands companies. Here are key things to know about the deal:

Why did Suncor want COS so much?

Suncor gets control of the 37 per cent interest COS has in the massive Syncrude oilsands operation, increasing its own share of the 350,000-barrel-a-day project to 49 per cent. Samir Kayande, an analyst at RS Energy Group in Calgary, says Suncor likely expects to decrease costs and improve operations at Syncrude once it has more control.

"You can assume that you can bring in better reliability. That will be key," said Kayande.

The deal also allows Suncor to acquire COS while oil prices are down, setting it up for higher returns when prices climb.

"We know that probably $30 is the wrong price for oil. So as you get a commodity price rebound, picking up assets at low prices does make sense," said Kayande.

Why has COS agreed to the deal?

With a single producing asset and no development project, the COS share price is more directly tied to oil prices than most oilsands companies. With oil prices down so much, COS could see its share price drop significantly if the deal fell through, said Robert Cooper, with the institutional sales and trading team at Acument Capital Markets.

"Correlation works both ways and you've got an oil price that's falling off a cliff and has fallen off a cliff," said Cooper. "If Suncor is to walk away, Canadian Oil Sands could be $4, $3, never mind $5. It would be a total blood bath and so this represents the best way out."

Who loses in the deal?

With Suncor getting the asset it wanted and COS managing to get an increase in the offer, Bob Schulz from the University of Calgary's Haskayne School of Business says the loser in the deal is Exxon Mobil's Imperial Oil. The company is currently the operator of Syncrude with a 25 per cent ownership stake, but Schulz thinks Suncor's larger stake will mean it can bump Imperial out of the control.

"They're probably going to be out as operator," Schulz said, adding that Imperial could also lose out on potential synergies with its own Kearl oilsands operation.

"Those synergies aren't going to be there. It's going to cause some real pencil sharpening for Imperial and Exxon," said Schulz.

Is it a done deal?

Suncor still needs to get shareholder approval, but the COS board of directors and major shareholder Seymour Schulich support the deal. Suncor has once again extended its deadline for shareholders to tender their shares and they now have until Feb. 4. It has also lowered the threshold for the deal so now only needs the support of 51 per cent of shareholders, down from two-thirds.

Can we expect more consolidation in the oil patch?

Low oil prices have pushed down stock prices across the board, creating some great buying opportunities in the energy sector. COS shares were trading at more than $23 in August 2014, but were down to a little over $6 when Suncor made its offer in October. And with low oil prices hammering cash flow, analysts say companies with big debts and liquidity problems will be pressed to make deals.

"I think that, in a down market, M&A tends to be driven by liquidity concerns. And so that's going to be the discipline that actually gets the sellers to the table," said Kayande.

"The longer that oil prices stay low, the more of these sorts of transactions we see."



Advertisements

Latest Economic News

  • Union representing 2,000 Quebec workers unsure about CSeries Airbus deal

    Economic CTV News
    MONTREAL -- Quebec workers with Bombardier's CSeries plane program have mixed feelings about the deal with Airbus giving the European aerospace giant a controlling stake in the aircraft, a union representative said Tuesday. David Chartrand, Quebec co-ordinator for the International Association of Machinists and Aerospace Workers, said the deal means access to a massive market and possibly more jobs. Source
  • Sears Canada's registered retirement plan appoints new administrator

    Economic CTV News
    VANCOUVER -- Morneau Shepell is taking over administration of Sears Canada Inc.'s registered retirement plan. The Financial Services Commission of Ontario says in a statement that the Ontario Superintendent of Financial Services appointed the human resources consulting and technology company after a competitive tendering process. Source
  • Liberals to narrow scope of passive-income measure for private corporations

    Economic CBC News
    The federal government is moving to pare down its controversial tax proposal on passive income so that it will only affect three per cent of private corporations. Finance Minister Bill Morneau will be in New Brunswick on Wednesday to unveil changes to his passive investment proposal so that it only targets unfair tax advantages used by the wealthy, a senior government official told The Canadian Press. Source
  • Freeland calls U.S. NAFTA demands 'troubling' and 'unconventional'

    Economic CBC News
    Foreign Affairs Minister Chrystia Freeland accused the United States of deliberately trying to undermine the North American Free Trade Agreement, calling its list of unconventional proposals "troubling." Her remarks came during a tense joint news conference as the fourth round of NAFTA talks wrapped up in Arlington, Va. Source
  • Veteran investor booted from Sprott board after racist comments

    Economic CTV News
    TORONTO -- Veteran investor Marc Faber was asked to resign from the board of directors at Sprott Inc. after comments he made in his investment newsletter that America was better off because it was settled by white people instead of black people. Source
  • Veteran investor Marc Faber booted from 3rd company after racist comments

    Economic CTV News
    TORONTO -- Veteran investor Marc Faber has resigned his board seats at three companies based in Canada on Tuesday following comments he made in his investment newsletter that America was better off because it was settled by white people instead of black people. Source
  • Missouri appeals court tosses $72M US award in talcum powder case

    Economic CBC News
    A Missouri appeals court on Tuesday that vacated a $72 million US award to an Alabama woman who claimed her use of Johnson & Johnson products that contained talcum contributed to her ovarian cancer has thrown the fate of awards in similar cases into doubt. Source
  • Latest NAFTA round ends in a stalemate with plans to extend talks into 2018

    Economic CTV News
    WASHINGTON -- U.S. Trade Representative Robert Lighthizer says NAFTA talks are being extended into 2018 -- a tacit admission that negotiators aren't going to meet their original deadline for a deal by year-end. The proposals tabled at the latest round have revealed huge chasms in negotiating positions, on everything from dairy and autos to even the basic architecture of an agreement -- and the tone of Tuesday's news conference made clear the talks have turned downright frosty. Source
  • Veteran investor Marc Faber booted from Sprott board after racist comments

    Economic CBC News
    Veteran investor Marc Faber was asked to resign from the board of directors at Sprott Inc. after comments he made in his investment newsletter that America was better off because it was settled by white people instead of black people. Source
  • White House says Fed search down to 5 finalists

    Economic CTV News
    WASHINGTON -- A White House official says U.S. President Donald Trump has narrowed his search for the next Federal Reserve chairman to five final candidates. A decision is expected before the president begins a trip to Asia on Nov. Source