MEG Shareholders Approve Cenovus Takeover After Long Bidding War

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(Bloomberg) — MEG Energy Corp. shareholders agreed to be acquired by Cenovus Energy Inc. after a dramatic five-month bidding war and multiple attempts to secure enough support to get the deal approved.

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More than 86% of all shareholders, and 83% excluding Strathcona Resources Ltd.’s votes, backed the deal. 

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The vote marks the conclusion of a takeover battle for MEG that kicked off in May when rival suitor Strathcona, controlled by former investment banker Adam Waterous, made an unsolicited bid for the company. Cenovus’s own offer in August won the boards’ support but disappointed some shareholders. Waterous, seeking to scuttle the Cenovus deal, raised Strathcona’s stake in MEG to more than 14% from about 9%, sweetened his offer, and pledged to vote Strathcona shares against Cenovus.

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MEG’s board, which backed the Cenovus offer, rescheduled a shareholder vote on the transaction three times as the deal struggled to gain sufficient shareholder support. Last week, in an about- face for Waterous, Cenovus announced it had earned the support of Strathcona, the largest MEG shareholder, after sweetening its offer to C$30 in cash or 1.255 Cenovus shares for each MEG share. As part of that agreement, Cenovus also offered to sell Strathcona some assets, including heavy oil production in Saskatchewan, for up to C$150 million.

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The last-minute agreement between Cenovus and Strathcona led to more drama, with MEG adjourning an investor meeting last week after hours of delay, citing a regulatory matter that the company wouldn’t explain.

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The regulatory issue was related to a complaint by a former MEG employee who holds about 4,000 votes, Cenovus CEO Jonathan McKenzie said on an investor call on Friday, without disclosing the person’s name. For its part, MEG’s board said it delayed announcing the voting results after determining, “as a matter of fairness,” that the Cenovus asset sale to win the support of Strathcona should be considered a “business combination” subject to a minority approval vote and approval by two-thirds of MEG shareholders. 

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The takeover of MEG, which operates a single oil sands site producing between 100,000 and 110,000 barrels a day of crude, positions Cenovus ahead of Suncor Energy Inc. as the second oil and gas producer in Canada behind Canadian Natural Resources Ltd., with the equivalent of almost 900,000 barrels a day of hydrocarbon output, according to data compiled by Bloomberg. 

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MEG has been a possible takeover target for years. In 2018, the company fended off Husky Energy Inc., which made an unsuccessful, unsolicited offer for the company. Husky was later acquired by Cenovus.  

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The takeover is the latest in a decades-long process of consolidation in the Canadian oil sands, the world’s third-largest crude reserves. International oil companies including Shell Plc., BP Plc, Chevron Corp. and TotalEnergies SE have either reduced their holdings or exited the region all together amid increased scrutiny of the higher-than-average emissions associated with oil sands crude, which must either be dug from a mine or pumped out of the ground after being loosed by steam injected into the earth. 

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Today, more than 90% of production is in the hands of five companies: Cenovus, Canadian Natural, Suncor and Imperial Oil Ltd, majority owned by Exxon Mobil Corp.  

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—With assistance from Christopher Charleston.

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