Cenovus signs $7.9B deal to buy MEG as Strathcona says company is ‘preying on a weak board’
MEG Energy Inc. has recently accepted a friendly cash-and-stock takeover offer from Cenovus Energy Inc. worth $7.9 billion, including debt. This decision came after rejecting an earlier unsolicited bid from Strathcona Resources Ltd. The special committee, led by MEG chairman James McFarland, carefully considered all available options to enhance shareholder value before reaching this agreement.
One of the main reasons behind Cenovus’s successful bid was the strategic alignment between the two companies, as they both have oilsands properties located side by side at Christina Lake, south of Fort McMurray, Alberta. This proximity offers the potential for increased operational efficiency and cost savings. Cenovus CEO Jon McKenzie highlighted the opportunity to acquire approximately 110,000 barrels per day of production adjacent to its existing operations.
The deal is expected to result in annual cost savings and efficiencies of $150 million a year in 2026 and 2027, and $400 million a year in 2028 and beyond. The combination of both companies’ expertise in the steam-assisted gravity drainage (SAGD) method for bitumen extraction is seen as a significant advantage. McKenzie expressed excitement about leveraging the best practices from both organizations to drive further value creation.
Under the terms of the agreement, MEG shareholders have the option to receive $27.25 in cash or 1.325 Cenovus common shares for each MEG share, with a cash limit of $5.2 billion and 84.3 million Cenovus shares available. The offer per MEG share translates to $20.44 in cash and 0.33125 of a Cenovus share. While MEG shares closed at $27.56 on the Toronto Stock Exchange, analysts view the deal as a “modest take-under.”
Strathcona Resources Ltd., which had made a competing offer, expressed disappointment over losing the bid to Cenovus. The company’s executive chairman, Adam Waterous, criticized MEG’s board for accepting a lower offer and accused Cenovus of taking advantage of the situation. Despite this setback, Strathcona remains engaged with MEG shareholders and plans to proceed with its previously disclosed plans if its tender offer is unsuccessful.
The deal is subject to approval by a two-thirds majority of MEG shareholders in a vote scheduled for October. Analysts believe that Cenovus has room to improve the offer before the vote and view the proposed transaction as a strategic move for both companies. The integration of MEG’s assets with Cenovus’s operations is expected to create significant synergies and drive long-term value for shareholders.
