Suncor and Canadian Oil Sands reach agreement for acquisition

Suncor Energy Inc. (TSX: SU) (NYSE: SU) and Canadian Oil Sands Ltd. (TSX: COS) have reached an agreement to support Suncor's offer to purchase all of the shares of COS.

Under the terms of the support agreement, Suncor has agreed to amend its offer to provide for an increase in the original offer to COS shareholders to 0.28 of a Suncor share for each COS share. The amended offer, with a total aggregate transaction value of $6.6 billion including COS' estimated debt of $2.4 billion, has the support of the boards of directors of both companies.

The COS board has received an opinion from its financial advisor, RBC Capital Markets, that, as of Jan. 17, the consideration under the amended offer is fair, from a financial point of view, to COS shareholders. The COS board has determined that the amended offer is in the best interests of COS and recommends that shareholders tender to the amended offer.

The amended offer is subject to certain conditions, including the acquisition by Suncor of at least 51% of the outstanding shares (calculated on a fully-diluted basis) being validly tendered under the amended offer and not withdrawn. This minimum tender condition has been lowered from 66 2/3%. Suncor has agreed that, if it takes up any shares, it will pursue a subsequent acquisition transaction to acquire any shares not tendered to the amended offer.

As a result of lowering the minimum tender condition to 51%, there have been changes to the expected US federal income tax consequences to accepting the offer, and Suncor now expects that the receipt of Suncor common shares in exchange for COS common shares pursuant to the amended offer will be a taxable transaction for US federal income tax purposes. COS shareholders are urged to carefully review the amended U.S. federal income tax disclosure to be provided in the notice of variation and extension. The amended offer will continue to allow a tax-deferred rollover for Canadian shareholders of COS.

The agreement provides that COS' board will issue a notice of change to its directors' circular that will contain its favorable recommendation to COS shareholders, together with the fairness opinion provided by RBC Capital Markets. COS expects to issue and mail the notice of change with Suncor's notice of variation and extension in connection with the amended offer. The agreement contains, among other things, provisions for the suspension of dividends in the first quarter of 2016 by COS, for non-solicitation of competing offers, provided that COS has the right to consider superior proposals from other parties, subject to a right on the part of Suncor to match any such proposal and for a $130 million break fee payable by COS to Suncor in certain circumstances if the offer is not completed. Shareholders who tender by the expiry date, assuming that the amended offer conditions are satisfied on that date, will be entitled to receive Suncor's first-uarter 2016 dividend anticipated to be paid in late March.

JP Morgan and CIBC World Markets are financial advisors to Suncor. Blake, Cassels & Graydon LLP and Sullivan & Cromwell LLP are Suncor's legal advisors. RBC Capital Markets is COS' financial advisor. COS' legal advisors are Osler, Hoskin & Harcourt LLP and Norton Rose Fulbright Canada LLP (advisor to the COS board). COS' strategic shareholder services and communications advisor is Kingsdale Shareholder Services.

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