Responding to Canada Southern Petroleum Ltd.’s latest statement Friday that shareholders should reject Canadian Superior Energy Inc.’s amended bid and tender their shares to Canadian Oil Sands’ (COS) offer (see Daily GPI, Aug. 14), Canadian Superior said Monday that it is “surprised” by Canada Southern’s “pessimistic view of its own Arctic natural gas interests.” Canada Southern also reported Monday that its 2Q2006 earnings were weaker than normal due to the company’s “hostile takeover defense” from Petro-Canada, which has since let its bid expire (see Daily GPI, July 13).
Despite offer rejections from Canada Southern, Canadian Superior continues to fight in an attempt to sway Canada Southern’s shareholders to tender their shares to its latest offer. Canadian Superior said Monday that Canada Southern has in its past filings expressed a very bullish outlook for its Arctic natural gas interest, noting that the company attributes approximately 927 Bcfe net to its Arctic interest, and states that this figure is based on what management believes are reasonable assumptions. In the circular, Canada Southern also states that it “believes that Arctic natural gas development will be economically viable.”
Canadian Superior said these claims “clearly contradict” Canada Southern’s Aug. 11 press release, in which Canada Southern notes that the ongoing interest in the Arctic resource proposed under Canadian Superior’s amended offer is based on “unsupported claims and arcane financial engineering” and that such an interest is unlikely to provide any income for at least another 10 or 15 years, if ever.
The three Calgary-based producers have been trading barbs over the past three months as offers to purchase Canada Southern were made and then revised (see Daily GPI, May 31; June 6). One of the significant sticking points of the COS offer was cleared up last week when the company reduced its minimum tender condition to 50.01% (as opposed to the previous 66.66%) of the common shares of Canada Southern (see Daily GPI, Aug. 8).
Under Canadian Superior’s amended offer, Canada Southern shareholders could elect to receive either:
In response to the offer, Canada Southern Chairman Richard C. McGinity said Friday, “With all of its unsupported claims and arcane financial engineering, Canadian Superior’s amended offer is a bridge to nowhere for Canada Southern shareholders. Compared to the certainty of Canadian Oil Sands’ cash offer of US$13.10 per share, Canadian Superior is offering a largely non-cash, yet fully taxable transaction that contains substantially less value and more risk for our shareholders.” The Canadian Superior offer is largely an exchange for its shares.
Canadian Superior said its view is that its amended offer is already superior to the offer made by COS and the company is confident that long-time shareholders of Canada Southern will agree.
“Canada Southern has attempted to validate its request that Canada Southern shareholders should tender their shares to the COS offer by advising that the officers and directors of Canada Southern have each committed to tender their shares and options to the COS offer,” Canadian Superior said. “Canada Southern shareholders are urged to review the circular to determine the holdings of the directors and officers of Canada Southern.
Canadian Superior urged Canada Southern shareholders who have already tendered to the COS offer to withdraw and tender them to the amended Canadian Superior offer. “If assistance is required in this regard, shareholders are urged to promptly contact Georgeson Shareholder at their toll free number (1-866-779-3373),” Canadian Superior said.
In announcing the company’s second quarter earnings Monday, Canada Southern posted a net loss of $1.7 million (-$0.11 per share) on revenues of $3.6 million, compared to net income of $1.1 million (+$0.08 per share) on revenues of $3.7 million for the prior year comparative. Net loss for the six months ended June 30, 2006 was $1.7 million (-$0.12 per share), compared with a net income of $1.3 million (+$0.09 per share) in the comparable prior year period.
“The decline in financial results this quarter was driven mainly by $1.6 million of general and administrative expense consumed in the defense against Petro-Canada’s hostile takeover offer,” Canada Southern said.
“Canadian Oil Sands’ all cash offer of US$13.10 per share made on July 12 is the highest bid that the company received, and no superior bid has been made since that date,” Canada Southern added. “Petro-Canada’s July 13 announcement that it had no intention of increasing its bid and would let its offer expire led the board to conclude that a bid superior to Oil Sands’ is highly unlikely to surface. The board urges shareholders to tender to the Oil Sands bid prior to its expiry on at 12:00 a.m. midnight (Los Angeles time) on August 18.”
The big attraction of Canada Southern is its 39,000 net acres in the Canadian Arctic islands. Canada Southern estimates its potential Arctic gas reserves at about a net 927 Bcfe, which is 68 times greater than its current 13.7 Bcfe of proved and probable reserves (see Daily GPI, May 26). The company also has producing assets in the Yukon Territory, in northeastern British Columbia and in southern Alberta.
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