The Cenovus Christina Lake oil sands facility in Fort McMurray, Alta. MEG and Cenovus have massive neighbouring oil sand properties in the region.AMBER BRACKEN/The Canadian Press
Cenovus Energy Inc. CVE-T boosted its offer for MEG Energy Corp. MEG-T to $8.6-billion in an attempt to win a hotly contested Alberta oil sands takeover battle.
Early Wednesday, Cenovus announced a cash-and-share bid of $29.80 per MEG share, up $1.32 per share from the offer the two companies announced in late August. The increased offer is meant to trump a hostile, all-share offer from Strathcona Resources Ltd. SCR-T
MEG’s share price jumped $1.81, or 6.4 per cent, to close at $30.05 on the Toronto Stock Exchange after the company announced the improved offer. Cenovus shares rose by 44 cents to close at $24.71, up 1.8 per cent.
Strathcona owns 14 per cent of Calgary-based MEG, and it has said it planned to vote against the Cenovus offer. On Wednesday, Strathcona did not respond to a request for comment.
In recent weeks, institutional investors in MEG pressed Cenovus to sweeten its friendly bid ahead of a shareholder meeting originally scheduled for Oct. 9. MEG announced on Wednesday the meeting to vote on the offer is being pushed back to Oct. 22.
Cenovus is offering $29.50 in cash or 1.240 Cenovus common shares for each MEG share, with a maximum payout of $3.8-billion in cash and 157.7 million Cenovus common shares.
The offer now consists of 50-per-cent cash and 50-per-cent Cenovus common shares. Previously, Cenovus’s bid was structured as 75-per-cent cash and 25-per-cent stock.
“Many MEG shareholders indicated that they would prefer to receive greater Cenovus share consideration, so that they can more fully participate in the upside of the combined company,” Jon McKenzie, chief executive officer of Cenovus, said in a news release. “We believe this amended agreement delivers compelling and superior value to MEG shareholders.”
On Wednesday, Calgary-based Cenovus said the new deal represents its “best and final offer for MEG.”
MEG’s board of directors recommended shareholders vote in favour of the takeover. In a news release, MEG chair James McFarland said: “This marks the third enhancement to the terms originally put forward by Cenovus, delivering a significant increase to an already attractive transaction.”
The Cenovus offer represents the highest price any buyer has ever paid for oil sands assets, MEG CEO Darlene Gates said in a news release.
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One institutional shareholder in MEG said Strathcona may come back with an increased all-share offer, as investors have shown they want own the oil sands properties. Cole Smead, CEO and portfolio manager of Smead Capital Management Inc., said Strathcona could attempt a knockout offer of between $33.50 and $34 per MEG share.
“Who is willing to pay that higher price is all that really matters, and we think that is ultimately what Strathcona is willing to do,” said Mr. Smead, whose firm owns 1.1 million MEG shares.
Strathcona initially launched a hostile takeover for MEG in May. In September, after the company announced a board-approved marriage with Cenovus, Strathcona increased its bid.
Strathcona is offering 0.8 of its shares for each MEG share, which equated to $30.86 per share when the bid was tabled on Sept. 8. In addition, Strathcona announced it will pay a $2.142-billion special distribution to shareholders later this year, which equates to $5.22 per share if its bid for MEG is successful.
If Strathcona decides to give up the chase, the company stands to make a profit of more than $30-million by selling its 36.1 million MEG shares. On Wednesday, Strathcona’s share price rose 2.4 per cent to close at $37.99 on the TSX.
Strathcona is majority owned by Calgary-based Waterous Energy Fund, a private equity platform founded by former investment banker Adam Waterous. The fund’s backers include Fairfax Financial Holdings Ltd., one of the country’s largest insurers.
Two influential proxy advisory firms – Institutional Shareholder Services Inc. and Glass Lewis & Co. – have endorsed the Cenovus bid over Strathcona.
MEG and Cenovus have massive neighbouring oil sands properties in the Christina Lake region of Northern Alberta. Cenovus said combining the two operations will generate operational savings, or synergies, of more than $400-million per year by 2028.
Strathcona owns oil sands properties in Alberta’s Cold Lake region. All three companies use steam-assisted gravity drainage to produce oil, which means there are cost-cutting synergies for both bidders.