MEG shares jump as Strathcona urges shareholders to consider deal after board rejects offer
Strathcona Resources Ltd. has launched a $5.93bn unsolicited bid to acquire all outstanding shares of MEG Energy Corp., offering MEG shareholders 0.62 of a Strathcona share and $4.10 in cash per share.
According to Strathcona, the proposal is valued at $23.27 per MEG share based on its May 15, closing price, reflecting a 9.3 percent premium.
As reported by BNN Bloomberg, Strathcona executive chair Adam Waterous said the deal would join two highly complementary businesses with nearly identical operations focused on steam-assisted bitumen extraction in eastern Alberta.
Neither company is involved in refining or fuel retail.
“I am actually not aware of two businesses of any scale in North America that share this level of complementary nature,” Waterous said during a May 16 analyst call, adding that “these are doppelgangers, brothers from another mother ... identical twins.”
According to Strathcona, the combined entity would become Canada’s fifth-largest oil producer and fourth-largest SAGD operator, with among the largest proved oil reserves in North America.
As per Strathcona’s press release, the cash portion of the offer will be backed by a bridge financing commitment from a syndicate of lenders.
Waterous Energy Fund (WEF), which holds 79.6 percent of Strathcona shares, intends to increase its investment through WEF III by subscribing for an additional 21.4 million shares.
Strathcona stated that if the transaction closes, the resulting company would have approximately 379 million shares outstanding and around $1.5bn in net debt.
Ownership would consist of 56.5 percent Strathcona shareholders, 37.8 percent MEG shareholders, and 5.6 percent WEF III, with WEF holding about 51 percent total equity.
The board of Strathcona unanimously approved the offer.
As reported by BNN Bloomberg, Strathcona submitted a formal written combination proposal to MEG’s board on April 28, which was rejected on May 13.
Strathcona said it respects MEG’s board decision and believes it was made in good faith, but it also argued that MEG shareholders should be allowed to make their own decision.
According to MEG’s May 17 statement, its board will review the offer once officially received and advised shareholders to wait for its recommendation.
Strathcona expects to file its formal takeover bid circular in the coming weeks and has signalled willingness to participate in a strategic alternatives process, provided it is not required to sign a standstill agreement.
Strathcona has identified $175m in annual synergies, including $50m in overhead savings, $25m in interest savings, and $100m in operating efficiencies.
According to Strathcona, these synergies are expected to result in meaningful accretion on several per-share financial metrics for both Strathcona and MEG shareholders.
As reported by BNN Bloomberg, MEG shares surged 18.7 percent on May 16, closing at $25.29 on the TSX—above the offer price—indicating that investors may be anticipating a higher bid.
According to Desjardins Securities analyst Chris MacCulloch, the offer represents a “modest” 9.3 percent premium and is “an affront to MEG shareholders.”
He added that other bids may emerge from larger players such as Canadian Natural Resources, Cenovus Energy, Suncor Energy, Imperial Oil or ConocoPhillips.
Enverus senior analyst Michael Berger said to BNN Bloomberg that the offer seems “a little bit light” given MEG’s asset quality, adding that “they operate some of the highest quality acreage in the oilsands today.”
According to Berger, Canadian oil and gas M&A activity has sharply accelerated, with US$2.5bn in transactions between Q1 and Q3 2024, compared to US$19.1bn since Q4 2024, with a focus on shale and oilsands assets.
Strathcona recently sold its Alberta shale gas operations in three separate deals worth $2.84bn and bought the Hardisty crude-by-rail terminal for $45m.
Strathcona reported first-quarter earnings of $205.3m or 96 cents per diluted share, compared to $100.6m or 47 cents per share a year earlier. Oil and gas revenue rose to $1.33bn from $1.17bn.
The bid comes amid broader sector consolidation.
Whitecap Resources completed a $15bn friendly merger with Veren Inc., and Texas-based Sunoco struck a US$9.1bn deal to acquire Parkland Corp.
In an opinion piece by The Globe and Mail, the bid follows direct engagement between Waterous and Prime Minister Mark Carney, who met in Edmonton in March to discuss energy sector concerns, including federal carbon caps and project approvals.
The piece noted that the timing of Strathcona’s bid could reflect confidence in changing federal policy and infrastructure developments like the Trans Mountain pipeline expansion.
Bank of Nova Scotia analyst Robert Hope recently reported that the pipeline’s capacity could increase by over 25 percent through additional bitumen dilution.
The same piece added that Waterous moved to secure alternative shipping by acquiring the Hardisty Terminal just days before the offer.
Strathcona also revealed, as per its press release, that it has secured backing from both Bank of Nova Scotia and Toronto-Dominion Bank for the transaction, indicating continued financial sector support for oilsands investment.
The Globe and Mail stated that if other CEOs share Waterous’s policy outlook, a bidding war could emerge, with companies like Cenovus—whose balance sheet has improved since acquiring Husky—expected to revisit MEG as a strategic target.
According to Berger, consolidation is likely to continue as operators pursue scale and cost efficiencies, despite MEG’s ability to continue as a stand-alone producer.
