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MEG Energy Corp. Board of Directors Recommends Shareholders Reject Strathcona Resources Ltd.'s Improved Hostile Takeover Bid

Strategic Insights

— 2 min read

MEG Energy Corp.'s board of directors is urging shareholders to reject Strathcona Resources Ltd.'s improved hostile takeover bid and stick with Cenovus Energy Inc.'s latest offer. The MEG board argues that Strathcona's all-stock offer is inferior to Cenovus's mix of cash and stock due to a significant special dividend promised to Strathcona's investors. This potential payout, valued at $2.14-billion, will increase Strathcona's financial leverage, exposing MEG shareholders to a riskier and more highly leveraged combined company.

MEG also took issue with Waterous Energy Fund's large ownership position in Strathcona, citing a timeline for returning capital to investors that creates material risk of share price decline. Strathcona executive chair Adam Waterous disputed the claims, stating that MEG investors face two clear choices: exit largely for cash to Cenovus at a discount or take shares in Strathcona and participate in the upside of the combined company. Cenovus CEO has reaffirmed his intention to stick with the $27.25 per MEG share offer, which was increased during negotiations with MEG. The production sites for Cenovus and MEG are also geographically closer, with Strathcona's assets being smaller and more dispersed.

Key Takeaways:

  • The MEG board recommends shareholders reject Strathcona's improved hostile takeover bid and stick with Cenovus's latest offer due to the significantly increased financial leverage of Strathcona's all-stock offer.
  • MEG shareholders would be fully exposed to a riskier, more highly leveraged combined company with Strathcona's all-stock offer, which includes a promised $2.14-billion special dividend to Strathcona investors.
  • Waterous Energy Fund's large ownership position in Strathcona creates a material risk of share price decline, according to MEG's board.
  • Cenovus CEO has reaffirmed his intention to stick with the $27.25 per MEG share offer, which was increased during negotiations with MEG.
  • The production sites for Cenovus and MEG are geographically closer than MEG's site is to Strathcona's, with Strathcona's assets being smaller and more dispersed.

Statistics:

  • Cenovus's improved offer consists of 25% equity and $27.25 per MEG share.
  • Strathcona's all-stock offer includes a promised $2.14-billion special dividend to its investors.
  • At least two-thirds of the votes to be cast at the October 9 meeting of MEG shareholders are needed for the Cenovus deal to proceed.

Sources:

  • Globe and Mail, "MEG Energy Corp. board urges shareholders to reject Strathcona Resources Ltd.'s improved hostile takeover bid"

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