Strathcona sweetens MEG offer in effort to outbid Cenovus

Strathcona Resources announced on September 8 that it was amending its takeover offer for MEG Energy. This marks an intensification in the battle for oil sands player MEG, whose board of directors has agreed that the company be sold to Cenovus Energy for CAD7.9bn ($5.7bn) including debt. However, the deal needs to be approved by two-thirds of MEG shareholders and Strathcona is pushing to have the deal rejected.

Strathcona had previously launched a hostile takeover bid for the company, which MEG’s board has urged shareholders to reject. (See NorthAmOil Week 35) Under that deal, it was proposing to buy MEG for CAD6bn ($4.3bn), consisting of 0.62 of a Strathcona share and CAD4.10 ($2.95) in cash per MEG share. According to Strathcona’s latest announcement, as of September 5, that offer was valued at CAD28.02 ($20.19) per MEG share.

Now, Strathcona has raised its offer to 0.80 of a Strathcona share per MEG share it does not already own. It said this equates to CAD30.86 ($22.24) per MEG share, representing a 10% increase on its original offer and an 11% premium to the agreement between Cenovus and MEG, based on September 5 share prices.

Strathcona has criticised the deal between Cenovus and MEG, calling it “lopsided”. The company has also increased its existing stake in MEG to 14.2% via two separate transactions announced last week. The first of these transactions involved the purchase of 6.66mn MEG shares for around CAD190.8mn ($137.5mn) and the second entailed Strathcona buying a further 6.04mn shared for roughly CAD172.7mn ($124.4mn).

The company has said that it intends to use its shares in MEG to vote against the Cenovus acquisition a special shareholder meeting that is scheduled for October 9.

Cenovus, meanwhile, does not plan to increase its offer for MEG. On September 10, Cenovus’ CEO, Jon McKenzie, told the Globe and Mail that he was confident his company’s existing offer would win out.

“We have the only viable bid,” McKenzie told the newspaper. “We have the only realistic bid and it is far superior to anything else that has been put out there,” he continued. “It is a deal that should get done at the current price.”

While Strathcona’s executive chairman, Adam Waterous, has accused MEG’s board of directors of seeking to sell the company to anyone except Strathcona, McKenzie told the Globe and Mail that MEG had run a traditional strategic review process. According to him, more than a dozen companies had participated in that process, resulting in multiple bids for MEG.

“Our bid was originally much lower than what we ultimately ended up with,” McKenzie was quoted as saying. “We put in a higher component of equity – they asked for that – and we added a significant number of dollars per share to our bid and eventually got to a place where it was accepted.”