Husky dropped MEG takeover bid despite 60% shareholders’ support

Reuters reports that Husky Energy dropped its MEG takeover bid last week despite the approval of the deal from 60 per cent of MEG Energy shareholders.  MEG Energy photo.

MEG takeover deal scuttled on Jan. 17

According to a report by Reuters, before walking away from the hostile MEG takeover bid, Husky Energy had gained the support of nearly 60 per cent of MEG Energy shareholders for the deal.

So this means that by last Wednesday, Husky had surpassed the 50 per cent threshold needed to extend their offer and move forward in their efforts to reach the two-thirds agreement necessary to be successful in their bid.

But on Thursday morning, Husky Energy announced it was abandoning the deal because of “insufficient” support.  Reuters says investors, analysts and MEG Energy were shocked by the announcement.

Husky said in a statement about its decision that since making its offer in September, there has been a lack of progress in expanding pipelines in western Canada, and the Alberta government ordered production cuts to reduce the glut of heavy oil.

However, Reuters sources say soon after announcing the takeover bid last fall, the deal lost its financial appeal.

According to MEG Energy, Husky did not take up MEG’s offer in November to sign a confidentiality agreement to get a closer look at the company.  MEG also told Reuters that earlier this month, Husky’s Chief Executive Rob Peabody did not accept an invitation from MEG Energy’s CEO Derek Evans to negotiate a friendly deal, and one source told the news agency that by last Wednesday, Husky was hoping the bid would fail.

“The economics of the transaction changed very materially since they launched the bid. It was an extremely shrewd move by Husky to launch the hostile (offer) and just as smart to let it go,” an energy M&A lawyer told Reuters.  The lawyer declined to be identified because he has ties to both companies.

Oil prices dropped about 28 per cent since Husky began the process and the numbers were worse for Canadian oil producers struggling to get their crude to market because of pipeline bottlenecks.

Husky is a producer and refiner, so the low price of crude somewhat worked to its advantage.  But when the Notley government put in place production cuts, the price of Alberta crude rose, cutting into its refining margins.

Rising prices for Alberta crude made the MEG Energy deal less appealing to Husky, Steve Kallir, senior analyst at Wood Mackenzie told Reuters.

Meanwhile, Eric Nuttall, senior portfolio manager at Ninepoint Partners, a MEG shareholder, told Reuters that MEG’s assets will endure for decades and make short-term thinking less relevant.






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