Cenovus reportedly preparing competing offer for MEG Energy

Canadian oil sands producer Cenovus Energy is reportedly preparing a bid for fellow oil sands player MEG Energy. Sources with knowledge of the matter were reported as telling Canada’s Financial Post on July 23 that such a bid was being prepared. If it goes ahead, it would represent a potential challenge to Strathcona Resources’ hostile takeover offer for MEG.

The sources, who were reported to be familiar with the bidding process, told the newspaper that MEG had set a deadline of July 28 for companies to submit bids to buy it. As of market close on July 23, MEG was valued at CAD6.8bn ($5.0bn). According to the sources, Cenovus is thought to be seeking financing to support the bid, though there is no guarantee that it will proceed.

This comes after Cenovus previously downplayed speculation about a potential acquisition. However, this report will only fuel further speculation.

Strathcona unveiled its bid to take over MEG in May in a cash-and-stock deal worth CAD6bn ($4.4bn), or CAD23.27 ($17.11) per share. MEG described Strathcona’s unsolicited bid as “inadequate” and not in the company’s best interest and urged shareholders in June to reject the proposal.

At the same time, MEG launched a strategic review of alternatives, including the invitation of potential rival bids for the company. Strathcona, which is owned by Calgary-based private equity firm Waterous Energy Fund, said in a statement that it welcomed MEG’s efforts to “market-test the offer against other acquisition proposals”.

This week, Strathcona’s chairman, Adam Waterous, told Bloomberg that buying MEG was not “Plan A” for his company and that if its bid fails, this would not represent a major setback.

“If we don’t buy MEG, we’ll probably issue a special dividend of about CAD10 [$7.35] a share,” Waterous told Bloomberg. “We’re in a very fortunate situation that our status quo situation is extremely compelling.”

Strathcona’s offer remains open until September 15.

The Financial Post cited a Royal Bank of Canada analyst as saying in May that Cenovus would be “the most logical fit” to buy MEG, given their operations in the same oil sands region in northeastern Alberta.