Strathcona Resources Ltd. has decided to withdraw its aggressive pursuit of MEG Energy Corp., paving the way for a more favorable bid from Cenovus Energy Inc. This decision follows Cenovus increasing its offer for MEG, a fellow player in Alberta’s oilsands. Strathcona, which also operates in the same region, acknowledged that the conditions for its offer to MEG are unlikely to be met due to the revised agreement between MEG’s board of directors and Cenovus Energy Inc.
Having a 14.2% stake in MEG, Strathcona had proposed exchanging 0.80 of its shares for each MEG share not already owned. In contrast, the latest offer from Cenovus values MEG at $8.6 billion, encompassing assumed debt and comprising an equal mix of equity and stock. Previously, Cenovus had offered a deal with a higher cash component, prompting some MEG shareholders to seek a larger share in the post-acquisition entity.
Despite expressing disappointment in the outcome, Strathcona recognized the collective efforts of MEG shareholders and itself in influencing a more equitable deal with Cenovus. The company expressed gratitude towards its shareholders for their backing during the MEG process and acknowledged the support received from various MEG shareholders who tendered their shares.
In a recent development, MEG and Cenovus revised the terms of their existing standstill agreement, permitting Cenovus to acquire approximately 10% of MEG’s shares. Strathcona criticized this move as unprecedented in the Canadian public markets and part of a series of anticompetitive actions by the MEG board. Consequently, Strathcona deemed an improved offer for MEG unfeasible and not in the best interests of its shareholders.
As part of its contingency plan, Strathcona intends to distribute a special payment of $10 per share to all its shareholders, as pledged if the MEG takeover bid fell through. The distribution requires approval from two-thirds of shareholders at a meeting slated for November 27. Following the divestment of MEG, Strathcona will emerge as the sole pure-play oil company in North America producing over 50,000 barrels per day without mines or refineries, distinguishing it from MEG and Cenovus. All three companies utilize steam-assisted gravity drainage for extracting oilsands bitumen.
MEG shareholders are set to vote on the revised offer from Cenovus on October 22.
