After being rebuffed by MEG Energy on its offer to acquire all the issued and outstanding shares of the company, Strathcona said it “welcomes the MEG board’s efforts to market-test the offer against other acquisition proposals”.
“Strathcona is delighted that the MEG board has accepted Strathcona’s recommendation to initiate a strategic alternatives process for the business and fully supports them contacting other potential acquirers to determine if a superior transaction to Strathcona’s offer is available,” Stratchona Executve Chairman Adam Waterous said in a statement.
On May 30, Strathcona made a formal offer to acquire all the issued and outstanding MEG shares it does not already own for a combination of 0.62 of a Strathcona share and $4.10 in cash per MEG share, which remains open until September 15.
MEG’s second largest shareholder said it “looks forward to engaging constructively and in good faith with the MEG board”.
Strathcona said it posted a new presentation on its website that “corrects a variety of errors and misleading statements in the Directors’ Circular which MEG and Strathcona shareholders are encouraged to review”.
“Strathcona looks forward to participating in the strategic alternatives process which will also provide an opportunity for MEG’s board to learn more about Strathcona, something which it has declined to do to date. To give the MEG board a head start in understanding our business, we have corrected a variety of inaccuracies contained in their circular,” Waterous said.
Last week, MEG’s board released a statement saying that the acquisition bid was “inadequate, opportunistic, and not in the best interests of MEG or its shareholders”.
MEG Chairman James McFarland said, “Strathcona’s Offer is inadequate by all reasonable measures and is not the right path forward for MEG shareholders. A combination with Strathcona would expose shareholders to inferior assets and significant capital markets risks, including a $6 billion overhang resulting from Waterous Energy Fund’s [WEF] 51 percent ownership in the combined company, which would allow WEF investors to realize liquidity over time”.
The MEG board published a Directors’ Circular, explaining the reasons for its recommendation to reject the proposal.
According to the circular, the Strathcona offer “lacks a real premium”. Since the announcement of the offer, MEG shares have consistently traded above the implied value of the offer, indicating that the market believes it significantly undervalues MEG’s shares, the board said.
“MEG has driven substantial transformation over the last few years,” MEG CEO Darlene Gates said. “With a stronger balance sheet and low-risk growth from our accretive Facility Expansion Project, we are delivering sustainable shareholder returns. Our growing free cash flow supports a robust return of capital program, while our multi-year investment plan provides access to high quality resources and reduces per-barrel costs and sustaining capital”.
According to the MEG statement, the company has received written opinions from financial advisors BMO Capital Markets and RBC Capital Markets that the consideration under the offer is inadequate for shareholders.
The MEG board has created a special committee to initiate a strategic review of alternatives with the potential to surface an offer superior to the company’s compelling standalone plan. MEG has begun an outreach to potential parties to explore and solicit potential interest in an alternative value-maximizing transaction for shareholders, according to the statement.
Strathcona said its offer remains “compelling” for the shareholders of both companies and provides a “true win-win” that would unite “two heavy oil ‘pure plays’ into a new Canadian oil champion, while delivering significant accretion to MEG and Strathcona shareholders on all key metrics”.
To contact the author, email rocky.teodoro@rigzone.com
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