MEG Energy Corp.’s board of directors is advising shareholders to decline an enhanced hostile bid from Strathcona Resources Ltd., deeming it inferior to the lower but more cash-focused friendly offer from Cenovus Energy Inc., a major player in the industry.
Strathcona initially proposed a mix of cash and stock earlier this spring. The revised bid, announced last week, was valued at $30.86 per share, up from $28.02.
Under the Cenovus proposal, MEG shareholders would have the option of receiving $27.25 in cash or 1.325 Cenovus common shares for each MEG share, with certain limitations. On a fully prorated basis, this would translate to $20.44 in cash and approximately one-third of a Cenovus share.
MEG board chairman James McFarland conveyed in a press release on Monday, “The revised Strathcona offer remains fundamentally unattractive for MEG shareholders because it fails to address or adequately compensate for the significant risks embedded in Strathcona shares.” He highlighted concerns such as inferior assets, an unproven track record, an overvalued Strathcona share price, significant overhang risk, and governance risk. In contrast, McFarland stated that the Cenovus deal offers the share price growth potential, cash, and certainty that MEG shareholders deserve.
Both Cenovus and MEG possess adjacent oilsands properties at Christina Lake, located south of Fort McMurray, Alberta, and have emphasized the potential efficiencies and cost savings from a potential merger.
MEG’s CEO Darlene Gates mentioned, “Through our engagement with MEG Shareholders, we have heard overwhelming acknowledgment of the industrial logic of the Cenovus transaction.” Meanwhile, Strathcona has criticized the Cenovus deal as “lopsided” and labeled the MEG board’s sale process as “broken” for accepting it.
The updated Strathcona offer also includes a special distribution valued at around $4.18 per share if successful. However, MEG noted that this distribution would not benefit shareholders as it would lower the market value of the combined entity.
The approval of the Cenovus deal requires a two-thirds majority vote by MEG shareholders, scheduled for October 9. Strathcona has indicated its intention to vote its 14.2% interest in MEG against the deal, with its offer remaining open until October 20.