Cenovus Energy Inc.’s acquisition of MEG Energy Corp. is likely to receive approval from shareholders this week following an increased offer and endorsement from former competitor Strathcona Resources Ltd. The revised deal, consisting of a combination of cash and stock, values MEG at $30 per share based on Cenovus’ closing stock price on Friday. The initial offer had been $29.50 in cash or 1.240 Cenovus shares, equivalent to $29.65 as of Friday.
MEG shareholders are set to vote on the proposal on Thursday, which has the backing of MEG’s board. The meeting was postponed from last week when it seemed the approval vote might fall short of the necessary two-thirds majority. However, Strathcona, which withdrew its own hostile all-stock bid for MEG, now plans to vote its 14.2 percent stake in favor of Cenovus’ new offer.
MEG stated that with Strathcona’s support, around 79 percent of MEG shares represented by proxy or expected to be voted in person at the meeting favor the improved Cenovus deal. Both Cenovus and MEG operate neighboring oilsands assets at Christina Lake, south of Fort McMurray, Alberta, and have highlighted the potential cost efficiencies from a merger. Strathcona also has steam-driven operations in the same area.
In a separate development, Cenovus announced the sale of its Vawn thermal heavy oil project in Saskatchewan and certain undeveloped land in western Saskatchewan and Alberta to Strathcona for $150 million, with $75 million paid in cash upfront and up to $75 million contingent on future commodity prices.
This marks the second time Cenovus has enhanced its offer despite earlier claims it would not. Initially composed of 75 percent cash and 25 percent equity, the bid was worth $28.48 before being increased on October 8. The acquisition process began in April when Strathcona made a cash-and-stock bid to MEG, which was rejected. Subsequently, Strathcona made a direct offer to MEG shareholders.
MEG’s board criticized the bid as “opportunistic” in June and recommended shareholders to turn it down while seeking better alternatives. MEG later accepted Cenovus’ friendly takeover offer in August. In September, Strathcona modified its offer to be entirely stock-based, arguing it would provide investors with more growth potential. Cenovus raised its bid and offered a higher equity share in early October, with an agreement allowing Cenovus to purchase up to 9.9 percent of MEG’s stock before the shareholder vote.
Following the withdrawal of its bid, Strathcona mentioned that the conditions of its offer could no longer be met, as some MEG shareholders criticized what they deemed as unfair practices to secure the deal with Cenovus.
