Canada Southern Petroleum’s board of directors told shareholders Monday that they should accept a US$9.75/share all-cash offer from Canadian Oil Sands for all of the outstanding stock of the company and reject two other offers from Canadian Superior Energy Inc. and Petro-Canada.

Last week, Canadian Oil Sands became the latest suitor to make an offer for the company. In response to a May 15 unsolicited offer by Petro-Canada, Canada Southern initiated a process to solicit potential alternative transactions that would provide greater value to Canada Southern shareholders. Canada Southern said the offer from Canadian Oil Sands represents a 30% premium to the Petro-Canada deal and an 11% premium to where its stock was trading prior to last Monday.

“If shareholders have tendered shares to either the Canadian Superior or Petro-Canada offers, the board recommends that they withdraw them immediately,” Canada Southern’s board said in a directors circular released on Monday. The circular provided shareholders with information on how to withdraw their shares tendered to the other offers.

The board said the Canadian Oil Sands offer was the “best available alternative.” It is “fair, from a financial point of view, to Canada Southern shareholders and is in the best interests of Canada Southern and its shareholders,” the board said.

The company calculated that the Canadian Oil Sands offer represents an 11% premium over the US$8.77 closing price of Canada Southern’s shares on NASDAQ on June 16, the last trading day prior to the date of announcement of Canadian Oil Sands’ intention to make the offer and an 11% premium compared to a 20-day average of its share prices prior to the offer.

Canada Southern’s board said it believes the Canadian Superior offer “fails to provide full value for Canada Southern.” Financial adviser CIBC World Markets told the company that the Canadian Superior offer was “inadequate, from a financial point of view.” Canadian Superior offered 2.75 of its shares and C$2.50 in cash for each outstanding share of Canada Southern. The offer was equivalent to US$8.48/share.

Canada Southern’s board flatly rejected Petro-Canada’s US$113 million (US$7.50 or C$8.26/share) offer last month, saying it undervalued the company’s assets, particularly its Arctic Islands holdings, and came at a time when its shares were trading at a low point. Nevertheless, Petro-Canada said it would stick with its initial offer.

Calgary-based Canada Southern has about 1,100 boe/d of gas production and about 39,000 net acres in the Canadian Arctic Islands. The company currently has 13.7 Bcfe of proved and probable reserves but it estimates that its potential reserves in the Arctic Islands could bring that total to as much as 927 Bcfe, an amount disputed by Petro-Canada.

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