Cenovus Energy is said to be preparing a competitive bid for MEG Energy Corporation setting the stage to potentially challenge a lucrative offer from Strathcona Resources, according to a report in the Financial Post.
MEG Energy, valued at $6.8 billion on the TSX, has established a Monday deadline for interested parties to submit bids. Cenovus is believed to be seeking financing to support its offer though there is no guarantee it will proceed.
“There could be a bit of a bidding war here, but ultimately I think the stronger party here could win,” Julian Klymochko, Accelerate CEO & Chief Investment Officer told BNNBloomberg in a Thursday interview.
MEG Energy urged shareholders to reject an offer from Strathcona on June 16 after the company previously announced a $6 billion cash-and-stock takeover offer for MEG in May.
MEG said its board of directors have determined that Strathcona’s “unsolicited bid to acquire all of the issued and outstanding MEG shares is inadequate, opportunistic, and not in the best interests of MEG or its shareholders”. The offer remains open until Sept. 15.
“MEG Energy Board of Directors officially opposed the hostile takeover,” said Klymochko. “In addition, they launched a strategic review of alternatives, which means they put up the for-sale sign. That looks like that’s all coming to a head.”
Klymochko said Cenovus can emerge as a “white knight,” representing a friendlier bid to Strathcona’s “hostile takeover.” He referenced a time when Husky Energy made a bid to acquire MEG Energy for $6.4 billion but that bid did not go through. Husky was then acquired by Cenovus for $23.6 billion two years later.
“The main potential white knight here, and in M&A parlance, that means a friendly bidder to top the hostile offer here would be Cenovus, which totally makes sense, because if we rewind back to 2018, Husky Energy, back when it was independent, made a hostile takeover bid for MEG Energy, which ultimately failed, but then Husky was acquired by Cenovus, and there’s a lot of synergies there because the assets really line up,” said Klymochko.
He said the last time a company had a hostile takeover was when Suncor bought Canadian Oil Sands in 2016 for $6.6 billion. The acquisition increased Suncor’s ownership stake in Syncrude, a major oilsands project, and involved a combination of cash and Suncor shares for COS shareholders. The deal was initially proposed in October 2015.
“That transaction started out hostile, and then ultimately, there’s no other bidders for that asset, so the acquirer just bumped the price and got a friendly deal in hand,” said Klymochko. “That could happen here, but if you’re Strathcona, you’re going up against a much larger, much more financially competitive interloper in Cenovus.”
BNNBloomberg.ca reached out to Cenvous and MEG Energy for comment on Friday but has not yet received a response.
