Jon McKenzie, CEO of Cenovus Energy in Toronto, September 10, 2025.Fred Lum/The Globe and Mail
Jon McKenzie will not be baited into a bidding war for MEG Energy Corp.
Two days after Strathcona Resources Ltd. boosted its hostile bid for the last of Canada’s pure-play oil sands producers, the chief executive officer of Cenovus Energy Inc. remains confident his friendly $7-billion deal will win.
“We have the only viable bid,” Mr. McKenzie said in an interview. “We have the only realistic bid, and it is far superior to anything else that has been put out there.”
“It is a deal that should get done at the current price.”
Strathcona’s original offer in May consisted of 0.62 Strathcona shares and $4.10 a MEG MEG-T share, which valued the company at nearly $6-billion before debt. It was rejected by MEG’s board in June.
After MEG accepted another offer from Cenovus CVE-T last month, Strathcona executive chair Adam Waterous accused the MEG board of directors of adopting an “anybody but Strathcona” view and said they “gifted” the company to Cenovus.
Mr. McKenzie said that, in reality, MEG ran a traditional strategic review process. More than a dozen companies participated in that process, he said, which resulted in multiple bids.
“Our bid was originally much lower than what we ultimately ended up with,” he said. “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.”
Mr. McKenzie remains confident his friendly $7-billion deal for MEG will win.Fred Lum/The Globe and Mail
Strathcona’s latest entirely stock-based offer of 0.8 Strathcona shares per MEG share values the company at roughly $7.85-billion, or $30.86 a share.
One MEG shareholder said Strathcona’s promised fourth-quarter special dividend of $5.22 a share (if the MEG deal gets done, rising to $10 a share if not) means the actual value of the offer is closer to $35 a MEG share. But Mr. McKenzie said that payout equates to taking money off the balance sheet and giving it to shareholders, meaning Strathcona’s share price will fall in direct proportion to the value of the dividend.
“It is kind of finance 101, the equity value should depreciate by the same amount as the dividend, so it is really a nothing‚” he said. “Adam is doing what Adam needs to do, there are no surprises there, but the reality is his bid just isn’t credible.”
In response, Mr. Waterous said Wednesday it is no surprise that a competitor with a cash bid “is trying to talk down a stock alternative that is far higher,” adding that he doesn’t know what Cenovus means about the credibility of his offer.
“Since we started our business in January, 2017, our shareholders have earned an 18 per cent compound annual rate of return, including dividends,” he said. “In the same time, Cenovus has earned 2 per cent. We think this is the type of credibility that matters most to shareholders.”
Strathcona shares have increased in price by more than 28 per cent since mid-May, but Mr. McKenzie said that is more a result of limited liquidity than genuine value creation.
An average of less than 100,000 Strathcona shares have traded per day over the past three months. The latest three-month average daily trading volume for Cenovus shares, by comparison, is more than nine million.
“There is nothing that should tell you that the Strathcona assets should trade at a significant premium to MEG and a significant premium to the industry,” Mr. McKenzie said.
“Adam’s bid is just an air bid, it is a paper bid. … It doesn’t have any validity.”
Mr. Waterous has previously criticized the Cenovus bid for being 75-per-cent cash, which would deny MEG shareholders the opportunity to participate in future upside. Mr. McKenzie, however, said MEG shareholders will have some flexibility in choosing the proportion of cash and shares they receive.
Cenovus has set aside $5.2-billion and 84.3 million shares for the transaction, chief financial officer Kam Sandhar said during an Aug. 22 conference call.
“You’ll have some shareholders that want more certainty and so they will take more cash, and you have some who want to continue on the journey and they will take more equity,” Mr. McKenzie said. “If you have more shareholders wanting cash, they will get prorated down to the 75 per cent, and if you have more shareholders that want equity, they will get prorated down to 25 per cent.”
MEG and Cenovus have neighbouring operations in the Christina Lake region of Northern Alberta, which is part of the reason Mr. McKenzie expects combining the two assets will generate operational savings, or synergies, of more than $400-million per year by 2028.
“You can really throw a rock from our plant to their plant,” he said.
In a presentation released alongside his amended offer Monday, Mr. Waterous claimed Strathcona – which also has operations in the region – would be able to generate similar savings. But Mr. McKenzie said investors should be skeptical.
Strathcona’s operating costs are more than double those of Cenovus and MEG, he said, and its steam-to-oil ratio – a key measure of efficiency in thermal oil sands operations – is also nearly 50-per-cent higher.
“They claim they can get our synergies but they have obviously never done that before,” Mr. McKenzie said. “They don’t do that on their existing properties, so why would we have any kind of confidence that they are going to be able to drive synergies on MEG properties?”
Cole Smead, the chief executive officer and portfolio manager of Smead Capital, which owns more than 1.1 million MEG shares, said Cenovus being unwilling to raise its bid increases the chances that Strathcona wins. At least two-thirds of the votes to be cast at an Oct. 9 meeting of MEG shareholders will need to be in favour of the Cenovus deal for Mr. McKenzie to win.
Mr. Waterous, who also heads the private equity firm that owns Strathcona, Waterous Energy Fund, recently boosted his stake in MEG to 14.2 per cent and plans to vote against the Cenovus deal. But Mr. McKenzie said he is not concerned.
“What Adam does between now and then is just noise in the system,” he said. “It is not credible and it is not something we think about.”