The heated bidding war over Canada Southern Petroleum shares boiled over Thursday with Petro-Canada subsidiary Nosara Holdings Ltd. increasing its offer by 47% to US$11/share and rival Canadian Superior urging Canada Southern Petroleum shareholders to acknowledge that its original offer (2.75 shares and C$2.50 cash for each Canada Southern share) represents the best long-term value because its shares currently are underpriced in the market. Canada Southern Petroleum on Tuesday recommended that its shareholders accept a US$9.75/share all-cash offer from a third company, Canadian Oil Sands (see Daily GPI, June 27).
Canada Southern’s shares jumped 11.5% on the action Thursday to $US11.94 on the NASDAQ. A big reason for that jump undoubtedly was Petro-Canada’s decision to offer all Canada Southern shareholders, even those who already tendered common shares to the prior Nosara offer of only $7.50/share, the increased offer price of $11/share. The offer also was extended until July 17. It is conditioned, however, on Canada Southern dropping its shareholder rights plan, which allows the company to offer shareholders more of its shares in exchange for not tendering them to a hostile takeover bidder.
The big attraction of Calgary-based 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.
Petro-Canada has argued that Canada Southern overestimates its Arctic resources because only a portion are thought to be economically accessible and currently none are accessible because there’s no transportation infrastructure. Nevertheless, Petro-Canada still clearly covets the assets.
Petro-Canada already is the single largest leaseholder in the Canadian Arctic Islands with 187,000 acres, but it sees a need to aggregate many more reserves in the far north before proceeding with a development plan.
“The Arctic Islands are a strategic, long-term asset for Petro-Canada,” said Kathy Sendall, senior vice-president of Petro-Canada’s North American Natural Gas business. “By acquiring Canada Southern, not only do we add an important piece to our northern portfolio, but we also remove the economic burden of the carried interests — a logical step for future development of these resources. In addition, as the controlling interest holder and as an established operator, it just makes sense that we would consolidate and develop these future resources.”
However, Petro-Canada has a tough battle on its hands with two other viable suitors. Canadian Superior values its own offer for Canada Southern at US$13.28/share based on an internal estimate of its asset value at US$4.02/share.
In a statement Thursday, Canadian Superior said it met with the president and legal counsel of Canada Southern in Canadian Superior’s offices on June 2 to notify the company of its impending bid. Canada Southern indicated that to properly evaluate Canadian Superior’s bid, Canada Southern and its board would require in-house technical staff to review Canadian Superior’s inventory of projects and assets. Such an analysis was never conducted and a follow-up meeting was never scheduled, Canadian Superior said.
As a result, Canadian Superior said “the directors of Canada Southern may have breached their fiduciary obligation” to shareholders.
“We are very optimistic that Canada Southern’s shareholders will recognize the full and fair value of Canadian Superior’s bid for Canada Southern,” said Canadian Superior CEO Greg Noval.
In two jabs at his competitors, Noval added the the Canadian Oil Sands offer seems to violate recent promises to shareholders that Canadian Oil Sands would stay focused on Alberta oilsands operations. He also said that unlike the Petro-Canada and Canadian Oil Sands offers, Canadian Superior’s offer is not subject to a 66.6% minimum threshold of shares tendered.
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