Cenovus Energy Inc. agreed to buy MEG Energy Corp. for C$6.93 billion ($5 billion), beating a bid from Strathcona Resources Ltd. to boost its position among Canada’s top oil producers.
The deal values MEG at C$27.25 and calls for Cenovus to pay three-quarters in cash and a quarter in stock, according to a statement Friday. Cenovus expects the acquisition to close in the fourth quarter, subject to regulatory and shareholder approvals. The total value of the deal is C$7.9 billion including debt.
The agreement caps a three-month battle for control of MEG triggered when oil tycoon Adam Waterous’ Strathcona Resources made an unsolicited cash-and-stock bid. MEG’s board had spurned Strathcona’s approaches before it took the proposal public. Once disclosed, some MEG investors panned the roughly C$6 billion proposal as too low. The board started a strategic review to seek other offers.
Royal Bank of Canada analyst Greg Pardy said in May that Cenovus was “the most logical fit” to take over MEG because it also operates in Christina Lake, offering greater potential operating synergies than other possible buyers.
The Cenovus takeover unites two Calgary-based firms with significant operations in the oil-sands region of northeastern Alberta. MEG’s Christina Lake project includes 200 square kilometers (77 square miles) of leases in the oil-rich area, and the company has regulatory approvals to produce around 210,000 barrels a day.
MEG, which pumps about 100,000 barrels of crude a day, is one of the last companies in the industry small enough to be taken over but large enough to vault the acquirer up in the ranks of the country’s major producers.
Cenovus is the third-largest Canadian crude producer by stock-market value, producing the equivalent of about 800,000 barrels of oil a day last year – mostly bitumen, along with natural gas liquids and some conventional oil and gas.
“This transaction represents a unique opportunity to acquire approximately 110,000 barrels per day of production within some of the highest quality, longest-life oil sands resource in the basin, which sits directly adjacent to our core Christina Lake asset,” Cenovus CEO Jon McKenzie.
Cenovus is financing the deal with a C$2.7 billion term loan facility and a C$2.5 billion bridge facility, which will be used to fund the cash part of the transaction. The term loan and bridge facilities were provided by Canadian Imperial Bank of Commerce and JPMorgan Chase & Co.
Goldman Sachs Group Inc. and CIBC were the financial advisers to Cenovus, while McCarthy Tétrault LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP were its legal advisers.
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