Cenovus Energy Inc.’s acquisition of MEG Energy Corp. is set to receive approval from shareholders this week, following an improved offer and endorsement from former competitor Strathcona Resources Ltd. The enhanced deal, announced on Monday, comprises a combination of cash and stock, valuing MEG at $30 per share based on Cenovus’ recent stock price. Initially, Cenovus had proposed $29.50 in cash or 1.240 Cenovus shares per MEG share.
MEG shareholders are scheduled to vote on the deal on Thursday, with the board’s backing. The vote was postponed last week amid concerns that the required two-thirds majority might not be met. However, Strathcona, having withdrawn its previous all-stock bid for MEG, now plans to support Cenovus’s proposal with its 14.2% stake.
“This increased confidence in the approval of the revised Cenovus transaction is due to Strathcona’s backing,” stated MEG. Both Cenovus and MEG operate adjacent oilsands facilities at Christina Lake, emphasizing potential cost efficiencies from a combined operation. Strathcona also has similar operations in the area.
The acquisition would bolster Cenovus’s daily oilsands production by 110,000 barrels, reaching a total of 720,000 barrels of oil equivalent per day. Cenovus anticipates output to rise further to 850,000 barrels per day by 2028. Additionally, Cenovus has agreed to sell its Vawn thermal heavy oil business and undeveloped land in Saskatchewan and Alberta to Strathcona for $150 million.
According to Patrick O’Rourke, ATB Capital Markets’ managing director, the divested properties, producing around 5,000 barrels per day, align better with Strathcona’s scale than Cenovus’s operations. O’Rourke highlighted the potential for increased efficiency at these assets.
This marks the second time Cenovus has revised its offer, despite initial claims of it being final. Beginning in April, Strathcona’s pursuit of MEG escalated into a takeover bid, leading to a series of offers and counteroffers. The situation intensified in October, with Cenovus modifying its bid and acquiring a stake in MEG ahead of the shareholder vote. Subsequently, Strathcona terminated its pursuit, citing unmet conditions, as shareholders expressed concerns over perceived deal limitations with Cenovus.
