The improved hostile takeover bid from Strathcona Resources Ltd. SCR-T is still not good enough to win support from MEG Energy Corp. MEG-T
MEG’s board of directors released a litany of reasons on Monday detailing why they believe shareholders in the last independent Canadian oil sands producer should reject Strathcona’s latest proposal and stick with a friendly $7-billion deal with Cenovus Energy Inc. CVE-T
MEG said the all-stock offer Strathcona announced on Sept. 8 is actually worse than the mix of cash and stock the company first put on the table in May because of a large special dividend Strathcona has promised to pay its shareholders later this year.
Strathcona has committed to distributing $2.14-billion to its investors before the end of 2025, which will equate to $5.22 per share if its quest to acquire MEG is successful and $10 per share if its bid fails.
That “would significantly increase Strathcona’s financial leverage compared to the initial unsolicited offer and the Cenovus transaction,” MEG said. “With consideration now entirely in Strathcona shares, MEG shareholders would be fully exposed to a riskier, more highly leveraged combined company.”
MEG also took issue with Waterous Energy Fund, the private equity firm headed by Strathcona executive chair Adam Waterous, for its “large, concentrated ownership position” in the company. During Strathcona’s November, 2024, investor day, Mr. Waterous said WEF was “going to have to return all of the capital to our investors roughly over the next three years.”
MEG said Monday that timeline “creates material risk of share price decline for the combined company.”
In response, Mr. Waterous said the MEG board was making “false and misleading claims that Strathcona has already publicly debunked.”
“In reality, MEG investors face two clear choices: Exit largely for cash to Cenovus at a discount to Strathcona’s offer or take shares in Strathcona and participate in the upside of the combined company,” he said.
Cenovus CEO Jon McKenzie told The Globe and Mail last week that he has no intention of raising his offer for MEG despite Strathcona’s recently-sweetened bid, and he revealed that his proposed offer “was originally much lower than what we ended up with.”
In its statement on Monday, MEG’s board said “through vigorous negotiations,” Cenovus increased its offer from $25 per MEG share to $27.25 per MEG share, as of Aug. 22, with the equity component rising from 20 per cent to 25 per cent.
MEG and Cenovus are also much closer together physically than MEG is with Strathcona, with the production sites for the two companies’ Christina Lake operations in Northern Alberta being so proximate that “you can really throw a rock from our plant to their plant,” Mr. McKenzie said.
“Strathcona, on the other hand, owns a portfolio of much smaller, geographically dispersed assets with a higher cost structure,” MEG said in its statement.
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 it to proceed.
Strathcona, which recently boosted its stake in MEG to 14.2 per cent, plans to vote no and Mr. Waterous has previously told The Globe that other MEG shareholders are unhappy with the price Cenovus has agreed to pay.