A worker at Cenovus' Sunrise oil facility northeast of Fort McMurray in 2023. Cenovus and Strathcona Resources have both made takeover bids for MEG Energy.Victor R. Caivano/The Associated Press
Shareholder adviser Glass Lewis & Co. is backing Cenovus Energy Inc.’s CVE-T friendly $7-billion takeover of MEG Energy Corp. MEG-T over a competing, hostile offer from Strathcona Resources Ltd. SCR-T
On Tuesday, Glass Lewis lined up with rival advisory firm Institutional Shareholder Services Inc. and endorsed Cenovus’s cash-and-share offer for its next-door neighbour in Alberta’s oil sands. MEG shareholders are scheduled to vote on the takeover Oct. 9.
“We place significant weight on the certainty of value offered by Cenovus’ cash-heavy structure, the absence of financing conditions and the higher probability of timely closing, as well as the reduced governance and liquidity risks as compared to Strathcona,” said Glass Lewis in a report.
“We recommend that [MEG] shareholders vote for the proposed plan of arrangement with Cenovus,” said the proxy adviser.
Cenovus is offering $27.25 in cash or 1.325 of its own shares for each MEG share, while Strathcona is offering 0.8 of its shares for each MEG share. All three Calgary-based companies operate large properties near Fort McMurray, Alta.
Glass Lewis and ISS have significant influence with index funds and other passive investors. These shareholders rely on the advisory firms’ voting recommendations and sometimes determine the winners of contested takeovers.
Last Friday, ISS said Cenovus’ offer deserved “cautionary support” from MEG shareholders.
In May, Strathcona put MEG in play by going public with an unsolicited bid for the company. MEG’s board responded by running a sales process that resulted in an agreement with Cenovus in August.
In September, MEG’s board of directors backed the Cenovus offer over an improved bid from Strathcona.
Over the past four months, MEG’s board refused to engage with Strathcona because its suitor declined to sign a standstill agreement that other bidders agreed to. Strathcona executive chair Adam Waterous said the MEG board ran a flawed process that failed to get the best possible offers for the company.
On Tuesday, Glass Lewis said: “While we believe MEG’s board may have engaged Strathcona more constructively – potentially levering up the competitive interest – we don’t find the board’s process to be a failed effort, as portrayed by Strathcona.”
Glass Lewis said both the Cenovus and Strathcona bids are “credible but cater to different shareholder preferences.
Cenovus offered MEG’s owners greater certainty and a cash component, while Glass Lewis said Strathcona’s bid “offered a higher headline value at announcement and greater long-term participation.”