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(Bloomberg) — Strathcona Resources Ltd. plans to issue a special dividend and increase the liquidity of shares traded should the company’s takeover attempt of MEG Energy Corp. fall through.
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Buying MEG is not “Plan A” for Strathcona, chairman Adam Waterous said Monday about the Canadian oil company’s C$6.6 billion ($4.4 billion) hostile takeover attempt of the rival oil sands producer. But a failure won’t be a major setback, he said.
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“If we don’t buy MEG, we’ll probably issue a special dividend of about C$10 a share,” Waterous said in an interview with Bloomberg. “We’re in a very fortunate situation that our status quo situation is extremely compelling.”
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In May, Strathcona offered about C$23.27 per MEG share in a cash-and-stock offer for the company shortly after agreeing to sell its assets in the Montney shale formation in western Canada in a C$2.8 billion deal. Last month, MEG’s board advised shareholders to reject Strathcona’s bid, calling it inadequate and saying that combining with Strathcona would expose its investors to “inferior assets.” The board also started a strategic review that may include finding other offers.
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A takeover of MEG would be the biggest acquisition yet for Strathcona, which former investment banker Waterous built through a flurry of deals over the past decade. The deal would make Strathcona a major heavy crude oil producer, adding MEG’s roughly 100,000 barrels of daily output from its Christina Lake asset to Strathcona’s projected 120,000 barrels of daily production.
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The proposal would provide MEG shareholders with synergies by being part of a larger company with multiple operations, and a successful takeover would upgrade Strathcona to investment grade and increase the company’s liquidity so that the shares would be included on stock indexes, Waterous said.
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Strathcona became a public company two years ago through an all-share purchase of Pipestone Energy Corp., but 91% of the shares were held by Waterous Energy Fund through a series of partnerships. Since then, WEF has begun to unwind those partnerships, cutting its stake to about 80%. With or without a MEG deal, WEF’s ownership of Strathcona is set to be unwound further in the coming years and shares distributed to limited partners, Waterous said.
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“A couple of years from now, Waterous will have distributed all of our partnerships, and the company will have become widely held,” he said.
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