Pictured above: MEG’s production operations site at Christina Lake
(Bloomberg) — Strathcona Resources Ltd. increased its bid for oil sands producer MEG Energy Corp., seeking to break up the oil sands producer’s sale to larger Canadian rival Cenovus Energy Inc.
Strathcona, controlled by former investment banker Adam Waterous, is now offering 0.8 of a share for each share of MEG. That would value the Calgary-based target at around C$7.8 billion ($5.7 billion), based on Friday’s close. The new price is about 10% higher than Strathcona’s original takeover bid and tops the price Cenovus agreed last month to pay for MEG.
The new offer from Waterous marks the latest twist in the biggest takeover drama in the Canadian oil patch since Brookfield Infrastructure Partners LP succeeded in acquiring Inter Pipeline Ltd. four years ago in a battle with Pembina Pipeline Corp.
MEG has repeatedly shunned Waterous’ advances, first saying it wasn’t interested in a sale when he’d approached the company’s board and later urging shareholders to reject his offer after he took it directly to investors. The board argued that the bid was too low and would expose its investors to “inferior assets.”
MEG then started a review of alternatives and last month agreed to a takeover by Cenovus. The Cenovus bid values MEG at a little more than C$7 billion, based on Friday’s closing share price — but it’s also three-quarters cash. The two companies see the ability to eventually cut more than C$400 million in costs because they have operations near each other in northeastern Alberta, where MEG pumps about 100,000 barrels of crude a day.
MEG’s shares rose 1% to C$28.62 at 10:21 a.m. in Toronto, below the per-share value of Strathcona’s most recent bid. The shares had been trading above the cash price of Cenovus’ offer for the past two weeks.
Waterous has said the Cenovus offer undervalues the company. Strathcona had acquired a 9.2% stake in MEG when he first introduced his bid, and he had increased the stake to 14.2% as of last week. Waterous has pledged to vote his shares against the Cenovus deal. If successful, a takeover of MEG would be the biggest acquisition yet for Strathcona, which Waterous built through a flurry of deals over the past decade.
Strathcona’s initial offer for MEG was criticized by some shareholders as too low. The Cenovus takeover also wasn’t well received by some MEG investors since it valued the company at less than the previous day’s closing price.
