By Adriano Marchese
Shares of MEG Energy jumped Friday morning after Calgary-Alberta based Strathcona Resources unveiled a cash-and-stock bid to acquire the oil sands producer, setting the stage for a possible bidding war in Canada's oil patch.
MEG shares recently traded 18% higher at 25.13 Canadian dollars ($18.00), coming down from an earlier high of C$28.64.
Strathcona, which already owns 9.2% of MEG, said late Thursday that it plans to offer 0.62 of its shares and C$4.10 in cash for every MEG share it doesn't currently own.
The proposed deal values MEG at about C$23.27 a share, or a 9.3% premium based on Thursday's closing prices, a low offer unlikely to be accepted by MEG's shareholders, according to Desjardins analyst Chris MacCulloch.
"The offer represents only a modest 9.3% premium for a company which will likely attract competing offers from larger Canadian oil sands producers offering superior financial and operational synergies," MacCulloch said.
On Friday, MEG Energy said it would consider a formal offer from Strathcona Resources but added that it hasn't received one yet after Strathcona announced its takeover bid.
MEG, a pure-play thermal oil producer with a market cap of C$5.47 billion, is seen as a strategic target in a consolidating sector. The Strathcona offer gives its owners a 56.5% share of the combined company, and about 37.8% to MEG shareholders. The remaining 5.6% would be owned by Calgary-based private equity firm Waterous Energy Fund III.
Strathcona wants to build a larger oil sands player in Alberta. It said this combination would create Canada's fifth largest oil producer and fourth largest steam-assisted gravity drainage producer, holding some of the largest proven oil reserves in North America.
Steam-assisted gravity drainage, or SAGD, is a method of oil recovery that involves injecting steam into a well that melts the bitumen and is then pumped to the surface.
Before the market opened Friday, Strathcona shares were down about 1.9% since the year began, closing Thursday at C$30.92. MEG Energy's stock was down 9.8% year-to-date and closing Thursday at C$21.30.
In Friday trading, Strathcona shares were recently down 1.7% at C$30.39.
Strathcona estimates about C$175 million in annual synergies, including C$50 million on overhead cuts, C$25 million in interest savings and C$100 million in operating efficiencies.
Analysts say the modest offer will likely draw out rival bidders for MEG, given the modest premium behind the offer and large players in the Canadian oil sands space that could offer more complementary combinations.
"There are several larger and more natural acquirers of MEG," MacCulloch said, citing Pathways Alliance members Canadian Natural Resources, Cenovus Energy, Suncor Energy, Imperial Oil and ConocoPhillips, which could provide similar or better operational and financial synergies.
In anticipation of a formal offer, MEG has advised its shareholders not to take any action yet until the board has had an opportunity to review an offer and its merits.
Write to Adriano Marchese at adriano.marchese@wsj.com
(END) Dow Jones Newswires
May 16, 2025 10:27 ET (14:27 GMT)
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