Cash vs. stock: MEG shareholders face stark choice in takeover battle

Under an amended offer announced Monday, Strathcona is offering 0.80 of a share per MEG share it does not already own. Its earlier overture was a combination of cash and stock. The latest offer is worth $30.86 per share, up from its earlier bid valued at $28.02 per share. 

The Cenovus offer would see MEG shareholders choose between $27.25 in cash or 1.325 Cenovus common shares for each MEG share, subject to certain limits.

Strathcona claims MEG deal hands Cenovus the upside, not shareholders

Strathcona is calling the Cenovus deal “lopsided” and the MEG board’s sale process “broken” for accepting that offer. 

“Congratulations, MEG board—you are in first place in the last 20 years for leaving the most amount of money on the table for your shareholders. You win the prize,” Strathcona executive chairman Adam Waterous said in an interview Monday.

Waterous noted Cenovus’ stock jumped 10% in the days following news of its deal with MEG, but typically an acquirer’s share price would fall after such an announcement. Waterous says that equates to a $3.9-billion gain in Cenovus’ stock market value that MEG shareholders are mostly not able to enjoy, as they would only own 4% of a post-takeover company. 

New bid highlights choice between short-term cash and long-term gains

Under the Strathcona deal, MEG shareholders would own 43% of the new entity. 

“These are two radically different paths. One is a cash exit, leaving Cenovus a $3.9-billion gain,” Waterous said. “And the second is you’re not getting off the train, you stay on the train and you try to capture that over time.”

The new offer expires on Oct. 20. MEG and Cenovus did not respond to a request for comment on Monday. 

MEG’s board has raised concerns about Strathcona’s majority shareholder—Waterous Energy Fund, which Waterous runs—selling its stake after the takeover. Waterous said he’d be in it for the long haul and there is no intention of exiting after a potential deal closes. He said Monday that his fund would be willing to enter into a lockup agreement not to sell the shares if MEG were to support its bid. 

Waterous slams MEG board, says Cenovus deal will be a business school case study

The Cenovus deal must be approved by a two-thirds majority vote by MEG shareholders expected to be held on Oct. 9. Strathcona says it intends to vote its 14.2% interest in MEG against the deal.

“I have not spoken to a single MEG shareholder who is happy with the MEG board deal with Cenovus,” Waterous said. “This is going to be taught in business schools about boards of directors’ dereliction of fiduciary duty.”

Cenovus and MEG have side-by-side oilsands properties at Christina Lake, south of Fort McMurray, Alta. Strathcona also has operations in the region, and Waterous said a combination with his firm would offer similar benefits. 

MEG shares rose two per cent, or 58 cents, to $28.93 in early afternoon trading on the TSX. Cenovus stock fell nine cents or about half a percentage point to $22.02, while Strathcona fell 62 cents, or 1.6% to $37.80. 

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