Strathcona Resources Ltd. has decided to withdraw from its hostile takeover attempt of MEG Energy Corp., paving the way for a more favorable bid from Cenovus Energy Inc., which was previously viewed as hostile. The decision by Strathcona came shortly after Cenovus improved its offer for MEG, a fellow player in Alberta’s oilsands sector where Strathcona also holds interests.
In a statement released on Friday, Strathcona noted that due to the updated arrangement between the MEG board and Cenovus, the conditions necessary for its offer, or any potential enhanced offer, were no longer feasible. Strathcona, which already owned 14.2% of MEG, had proposed exchanging 0.80 of its shares for each MEG share it did not possess.
Cenovus recently revised its bid for MEG to a total valuation of $8.6 billion, encompassing assumed debt and comprising a fifty-fifty split between equity and stock components. The previous offer had included a higher cash proportion, prompting some MEG shareholders to advocate for a greater stock allocation in the resulting merged entity.
While expressing disappointment over the outcome, Strathcona acknowledged the collaborative efforts of MEG shareholders in achieving a more balanced deal with Cenovus, enabling enhanced participation in potential future benefits. The company expressed gratitude to its shareholders for their steadfast support throughout the process, recognizing the backing received from numerous MEG shareholders who tendered their shares.
The recent adjustment between MEG and Cenovus involved modifications to 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 actions by the MEG board that it deemed anticompetitive.
Strathcona concluded that the continuous extensions of the Cenovus meeting date by the MEG board, along with the ongoing share purchase and voting permissions granted to Cenovus, rendered an improved offer for MEG unfeasible and not in the best interests of Strathcona shareholders. The company intends to fulfill its commitment of a special distribution of $10 per share to all its shareholders, contingent upon two-thirds approval at a meeting scheduled for November 27.
Following the divestment of MEG, Strathcona anticipates being the sole pure-play oil entity in North America generating over 50,000 barrels per day without mining or refining operations. Notably, Strathcona, MEG, and Cenovus all utilize steam-assisted gravity drainage techniques in extracting oilsands bitumen.
MEG shareholders are set to vote on the revised Cenovus offer on October 22.