Meg Energy Finds White Knight in Cenovus Energy

After rejecting a hostile acquisition offer from Strathcona Resources Ltd, MEG Energy has now entered into a friendly deal with Cenovus Energy Inc. The deal values MEG at nearly $7 billion, making it the last of Canada’s large pure play oil sand producers to be acquired. Analysts had predicted that another bidder would emerge following Strathcona’s bid in May, with Cenovus being identified as a potential suitor.

Combining Forces

Cenovus and MEG have adjacent operations in Northern Alberta, and a merger between the two companies would create the second largest oil sands producer in Canada. With a combined average production of around 720,000 barrels per day, the merged entity would account for a significant portion of Canada’s oil production.

“The fit is exceptional and aligns with our core strengths,” said Jon McKenzie, CEO of Cenovus, during a conference call discussing the deal. “These assets have significant long-term potential.”

Response from Strathcona

Strathcona’s Executive Chairman, Adam Waterous, expressed disappointment with the deal, stating that Cenovus had “snatched a bargain” and accused MEG’s board of favoring any bidder over Strathcona. Despite this, Strathcona plans to continue engaging with MEG shareholders before the September 15 deadline.

Deal Details

Cenovus has offered a mix of cash and shares for MEG, valuing the company at $27.25 per share, with 75% in cash and 25% in shares. The total deal, including MEG’s existing debt, amounts to $7.9 billion. While Cenovus’s offer is higher than what Strathcona initially proposed, the structure of the deal differs significantly.

While Strathcona’s offer currently values MEG at $28.17 per share due to a rise in Strathcona’s stock price, the cash-heavy nature of Cenovus’s offer has drawn criticism from Strathcona.

Strategic Growth for Cenovus

For Cenovus, the acquisition of MEG represents a significant strategic move, marking one of the company’s largest acquisitions since its inception in 2009. Over the past decade, Cenovus has pursued an aggressive growth strategy through acquisitions, including the notable purchases of Conocophillips Co. in 2017 and Husky Energy Inc. in 2020.

The combined company is expected to produce over 850,000 barrels per day from the oil sands by 2028, positioning Cenovus as a key player in the industry. Cost savings and synergies are also anticipated following the completion of the merger.

“We are confident in our ability to realize the identified synergies and unlock further potential through our long-term development plans,” said Mr. McKenzie.