One of Calgary’s premier oil and gas companies, Husky Energy Inc., has launched a hostile takeover for crosstown oilsands producer MEG Energy Corp.
In total, Husky would pay C$3.3 billion for MEG and also assume C$3.1 billion in debt, giving a total deal valuation of C$6.4 billion.
Under the terms of Husky’s proposal, each MEG shareholder would have the option to receive C$11/share in cash or 0.485 of a Husky share. The exchange ratio was calculated on Husky’s closing share price of $22.68 as of Friday (Sept. 28). Husky said the proposal was a 37% premium to MEG’s closing price as of last Friday.
The combined company would have pro forma upstream production of more than 410,000 boe/d and downstream refining and upgrading capacity of about 400,000 b/d.
“Husky is confident the proposed transaction is in the best interests of Husky and MEG shareholders, employees and stakeholders,” Husky CEO Rob Peabody said on Sunday (Sept. 30). “However, to date, the MEG board of directors has refused to engage in a discussion on the merits of a transaction, giving us no option but to bring this offer directly to MEG shareholders.”
Husky is prepared to engage in discussions with MEG’s board, but it said it “intends to commence an offer directly” to MEG shareholders “by way of a takeover bid so they can determine the future of their investment.”
The MEG board said it is considering Husky’s offer but it encouraged shareholders to take no action until the offer had been reviewed.
During a conference call to discuss the potential transaction on Monday, Peabody said Husky had looked at potential acquisitions over time.
“We always look at potential acquisitions, but this one just became too compelling to ignore. I mean, we believe this offers a great deal for MEG shareholders, a 44% premium to the last 10 days, much higher if you look at the last two years, gives them immediate access to a dividend, and to this investment grade balance sheet would of course, when you have that much debt, is incredibly valuable and a key source of our synergies. So, we ultimately feel this is a very friendly deal to shareholders…
“We approached the MEG board, and were rebuffed, sort of. But we believe...MEG shareholders will find this offer compelling and they need to have a chance to make a decision on it....We’d love to engage with the MEG board to complete this transaction faster and bring these benefits to shareholders as quickly as possible.”
Husky has more than 6,000 employees and contractors, plus an additional 2,400 skilled tradespeople working on maintenance and construction projects. The transaction, said management, would result in a “stronger combined technical and operating team that can apply its expertise across a larger asset base.
“We recognize the significant capabilities of MEG’s talented team,” said Peabody. “We believe MEG and Husky employees will benefit from substantial opportunities for growth and development as part of a stronger, combined Canadian company.”
Husky management “believes the combined company will have an improved opportunity to accelerate new projects in Canada compared to two separate entities.”
Now in its 80th year, Husky is one of Canada’s largest private sector investors, with planned Canadian capital expenditures of more than C$12 billion over its existing five-year plan. Husky’s ongoing investments include the West White Rose Project under construction in Newfoundland and Labrador, and a growing thermal program in Saskatchewan and Alberta.
MEG was started up in 1999 with the purchase of nine sections in what was then a relatively unknown Christina Lake region, which has since become a vast oilsands production area. It became a publicly traded company in 2010. The company received regulatory approval in 2012 to produce up to 210,000 b/d at Christina Lake.
The takeover proposal has been unanimously approved by Husky’s board. The proposed transaction could be completed in early 2019, Peabody said.