MEG Energy Inc. has agreed to a friendly cash-and-stock acquisition offer from Cenovus Energy Inc., valued at $7.9 billion, including debt, following the rejection of a previous unsolicited bid from Strathcona Resources Ltd. A special committee thoroughly assessed options to enhance shareholder value after Strathcona’s bid, stated MEG chairman James McFarland.
Cenovus was considered a likely contender to present a competing offer as both companies have adjacent oilsands properties at Christina Lake in Alberta, offering potential operational efficiencies. The acquisition would allow Cenovus to gain around 110,000 barrels per day of production close to its existing operations, with anticipated annual cost savings and efficiencies of $150 million in 2026-2027 and $400 million in 2028 and beyond if the deal is finalized.
During a conference call with analysts, Cenovus CEO Jon McKenzie praised MEG as a top performer in utilizing the steam-assisted gravity drainage (SAGD) method for bitumen extraction. McKenzie expressed enthusiasm for leveraging the strengths of both companies to drive further value creation through shared best practices and innovations.
Under the terms of the agreement, MEG shareholders have the option to receive $27.25 in cash or 1.325 Cenovus common shares per MEG share, with a cash limit of $5.2 billion and 84.3 million Cenovus shares available. The deal values MEG shares at $20.44 in cash and 0.33125 of a Cenovus share on a fully pro-rated basis.
Desjardins Securities analyst Chris MacCulloch described the deal as a “modest take-under,” considering MEG’s closing share price of $27.56 on the Toronto Stock Exchange. Strathcona’s ongoing offer includes 0.62 of a Strathcona share and $4.10 in cash per MEG share, valuing it at $28.17 per MEG share based on Strathcona’s closing share price.
The deal is subject to approval by a two-thirds majority of MEG shareholders in a vote scheduled for October. MacCulloch noted that Cenovus retains the flexibility to enhance the offer before the shareholder vote, calling the proposed acquisition a strategic move.
In contrast, Strathcona’s executive chairman, Adam Waterous, expressed discontent with the deal, accusing Cenovus of taking advantage of MEG’s board. Waterous reiterated Strathcona’s commitment to engaging with MEG shareholders before the September 15 deadline for its offer, emphasizing the perceived undervaluation of MEG in the Cenovus deal.
