Suncor Energy Inc launched a hostile bid for Canadian Oil Sands Ltd on Monday as the slump in oil prices encourages consolidation in Canada’s oil sands industry, which has some of the world’s highest operating costs and lowest prices.
Canadian Oil Sands and Suncor are among stakeholders in Canada’s largest synthetic crude project, Syncrude, in northern Alberta.
Alberta’s oil sands are the world’s third-largest crude reserves after Saudi Arabia and Venezuela and a leading source of U.S. crude imports.
Suncor’s all-stock offer for Canadian Oil Sands is valued at about C$4.3 billion ($3.29 billion).
Suncor shares were down 2 percent at C$34.67 and Canadian Oil Sands shares were up 48 percent at C$9.15 on the Toronto Stock Exchange on Monday morning.
Canadian Oil Sands was not immediately available for comment.
Canadian Oil Sands shareholders will receive 0.25 of Suncor shares for each share held, the company said.
The offer works out to C$8.84 per share based on Suncor’s Friday close and represents a premium of about 43 percent to Canadian Oil Sands’ most recent close on the Toronto Stock Exchange.
The deal is valued at about C$6.6 billion including Canadian Oil Sands’ debt of C$2.3 billion as of June 30.
Suncor has been scouting for assets and in September bought a tenth of the Fort Hills oil sands project in northern Alberta from French oil company Total.
Suncor said its share in Syncrude would rise from 12 percent to 48.74 percent under the proposed deal.
Suncor Chief Executive Steve Williams said the company approached Canadian Oil Sands in March with a proposal, which was rejected in April. He said Suncor decided not to pursue discussions, but it continued monitoring the company as the Canadian industry suffered from declining global prices.
“We remain convinced that there are significant benefits to a transaction for all interested parties,” he said during a conference call.
Williams said the value of Canadian Oil Sands has declined since the original offer due to deteriorating market conditions. He expects lower oil prices for several years.
Suncor said it was well-positioned to benefit from the offer because of integrated operations that include a refinery in Montreal. It estimated the deal would result in C$25 million in administrative savings.
Suncor’s financial adviser is JP Morgan Securities LLC while Blake, Cassels & Graydon LLP and Sullivan & Cromwell LLP are its legal advisers. ($1 = 1.3076 Canadian dollars)
(Reporting by Amrutha Gayathri in Bengaluru; and Mike De Souza and Nia Williams in Calgary; Editing by Sriraj Kalluvila and Matthew Lewis)
This article was from Reuters and was legally licensed through the NewsCred publisher network.