TORONTO (miningweekly.com) – Takeover target Canadian Oil Sands (COS) has urged shareholders to reject a C$4.3-billion hostile offer lodged by joint venture (JV) partner Suncor as the offer substantially undervalued the company and accused its suitor of “highly opportunistic” and “exploitive” behaviour.

The COS board stated that Suncor’s offer substantially undervalued its 36.74% stake in the Syncrude JV, one of the largest oil sands operations north of Fort McMurray, in the Northern Alberta oilpatch.

COS noted on Monday that as an insider of the Syncrude JV, through its 12% stake, Suncor was aware of several cost reduction and value-enhancing initiatives being discussed and implemented at Syncrude that had not yet been publicly disclosed.

Further, COS stated that Suncor’s offer was an attempt to gain control over its proven and probable reserves and 46-year production life without paying a fair price, noting that should the bid be successful, total reserves attributable to COS shareholders would decline 55% from 1.6-billion barrels to 700 000 bbl, with yearly output attributable to COS falling 46%, from 35-million barrels to 19-million barrels.

Compounding matters, COS felt that Suncor expected its shareholders to give up its “highly profitable” Syncrude upgrader for “free”. Gaining the upgrader could give Suncor leverage of the upgrader to the benefit of its 50.8% stake in its Fort Hills oil sands project (being developed in partnership with Total and Teck Resources), which was located next door.

At 0.25 of a Suncor share for each COS share, the bid offered less than the 0.32 of a share Suncor proposed in April. That proposal was below the market price of COS shares when it was rejected days later, COS stated.

The company's TSX-listed stock had fallen almost 12% since Suncor’s previous friendly offers were rebuffed in April, in step with falling Western Texas Intermediate (WTI) oil prices. WTI had dropped about 17% since April 9, when the second offer, with an implied value of C$11.84 a share, was lodged. On Monday WTI traded at about $45.88/bl.

Under terms of Suncor’s latest offer, each COS shareholder would receive one-quarter of a Suncor share, or about C$8.84, for each share tendered. Including COS's estimated outstanding net debt of $2.3-billion, as at June 30, the transaction was valued at about C$6.6-billion.

The COS board was looking at a “full range of strategic alternatives”, from continuing as an independent company to a merger or partnership with a strategic or financial partner or a sale reflecting full and fair value for COS share holders.

News agency Bloomberg quoted COS CEO Ryan Kubik as saying that despite there being interest, there were no alternative offers on the table. Owing to COS’s stock closing above the offer price earlier this month, when the offer was announced, market spectators were either expecting Suncor to come forward with a sweetened offer, or another rival to step forward with a competing bid.