Corporate war in the Alberta oil sands: Husky looks to buy MEG Energy in $6.4 billion hostile takeover

MEG Energy
As part of a $6.4 billion deal, Husky Energy announced on Monday a proposal to acquire all outstanding shares of MEG Energy for $11/share.  Company photo.

As part of a $6.4 billion deal, Husky Energy announced on Monday a proposal to acquire all outstanding shares of MEG Energy for $11/share.  Company photo.

Husky, MEG Energy company will have a total upstream production of 410,000 boe/d

Over the weekend, Husky Energy launched a hostile takeover bid for Alberta oil sands producer MEG Energy, which said Sunday that it will consider the offer.

In a press release issued by Husky, the company said it is offering to acquire all of the outstanding shares of MEG Energy Corp. for $3.3 billion.  The move comes after Husky made a play in the summer to purchase the Calgary-based company, but was rebuffed by MEG executives.

“The MEG board of directors has refused to engage in a discussion on the merits of a transaction, giving us no option but to bring this offer directly to MEG shareholders,” said Husky president and CEO Rob Peabody.

Husky is offering to purchase all outstanding shares of MEG Energy for $11 per share in cash, or 0.485 of a Husky share.  On Friday, MEG shares were trading at $7.62 per share.  As of 10:57 a.m., on Monday, MEG Energy shares jumped to $11.10/share.

The value of the shares added to the value of company debt of $3.3 billion makes the deal is worth $6.4 billion.

“We decided to take this offer to MEG shareholders because we just felt it was too compelling to ignore,” Husky’s Peabody told the Calgary Herald.

MEG Energy says it confirms it has received an offer, but did not take a position on the buyout when asked by the Herald.

“No formal offer has been made and MEG shareholders are advised to take no action with respect to any Husky offer until the board of directors has had an opportunity to fully review the offer, when received, and to make a recommendation as to its merits,” the company said in a release Sunday.

MEG Energy has 15 days to consider Husky’s offer.

According to the Husky press release, the combined Husky/MEG company will have a total upstream production of over 400,000 barrels of oil equivalent per day (boe/d) and downstream refining and upgrading capacity of about 400,000 barrels per day (b/d).

The combined company will create a stronger technical and operating team that Husky says can apply its expertise across a larger asset base.

“We recognize the significant capabilities of MEG’s talented team,” added Peabody. “We believe MEG and Husky employees will benefit from substantial opportunities for growth and development as part of a stronger, combined Canadian company.”

As well, Husky says the combined company will be a leader in carbon capture and storage, energy efficiency, enhanced SAGD and diluent reduction technology which will have greater opportunities to invest in advanced CO2 cutting technologies.

Husky says it is prepared to discuss the move with MEG’s board of directors, but Husky plans to proceed with the takeover bid.

“Husky continues to deliver on our five-year plan – maintaining a strong balance sheet while reducing our cost structure, increasing our production and margins and improving our ability to generate free cash flow – we are uniquely positioned to deliver strong value to MEG shareholders,” said Peabody.

Ninepoint Partners portfolio manager Eric Nuttall told the Calgary Herald that the proposed deal “validates the quality of their (MEG Energy’s) assets”.  Nuttall’s fund owns 2.5 million MEG Energy shares and he says he is not willing to accept the deal because he thinks another bidder will come to the table and create a bidding war.

Peabody told the Calgary Herald that he sees the possibility of a bidding war, but argues that no other company could match the “synergies” that Husky offers.

“Whether there may be other competitors, I don’t know,” he said, adding, “MEG and Husky is a match.”

The possible Husky deal is symbolic of the consolidation trend in the oil patch, according to Canoe Financial portfolio manager Rafi Tahmazian.

“We are in consolidation mode, and it’s about survival of the strongest and fittest,” Tahmazian told the Herald.





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