MEG Energy (TSX: MEG) is sticking to their original plan for acquisition, with the company’s board of directors this morning recommending that investors reject the revised offer from Strathcona Resources (TSX: SCR), and instead elect to proceed with the Cenovus Energy (TSX: CVE) offer previously put on the table.
In making the recommendation, MEG stated that the transaction with Strathcona “exposes MEG shareholders to inferior assets, an unproven track record, an overvalued Strathcona share price, significant overhang risk, and governance risk.” The company then went on to state that Strathcona offers a weaker balance sheet and increased financial risk for the combined company versus that of the transaction with Cenovus.
Under the current deal with Cenovus, investors are entitled to receive $28.18 per share of MEG Energy held, with shareholders on a fully pro-rated basis expected to receive $20.44 in cash and 0.33125 shares of Cenvous for each share of MEG. Strathcona meanwhile on September 8 increased their offer for MEG shareholders to 0.80 common shares of Strathcona for each share held of MEG, which at the time equated to compensation of $30.86 per share, an 11% improvement over the Cenovus offer.
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MEG however states that as a result of a proposed $2.142 billion special distribution planned by Strathcona, which amounts to $4.18 per MEG share, “does not deliver incremental consideration” to shareholders, due to the distribution increasing leverage while reducing equity values.
“The Revised Strathcona Offer remains fundamentally unattractive for MEG shareholders because it fails to address or adequately compensate for the significant risks embedded in Strathcona Shares,” commented James McFarland, Chair of MEG Energy.
Cenovus meanwhile has no intention of increasing their offer for MEG Energy, despite the revised offer from Strathcona.
MEG Energy last traded at $28.76 on the TSX.
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