MEG Energy Corp. has rejected Husky Energy Inc.’s $3.3-billion unsolicited bid, urging its investors to hang on for a richer offer for the oil sands producer.
MEG said Husky’s cash-and-stock bid, launched formally early this month, undervalues the company and seeks to take advantage of a weak energy market that had put pressure on its shares. MEG is worth more than what Husky is offering even as a stand-alone company, it said.
“The Husky offer significantly undervalues MEG’s assets, technology, expertise and business prospects,” chairman Jeff McCaig said in a statement. “Over the last few years, there has been a substantial transformation of our business, culminating in the appointment of a top-rated CEO and the strengthening of our management team.”
Husky has offered $11 in cash or 0.485 of a Husky share for each MEG share. It would also assume MEG’s $3.1-billion debt, putting the overall value of a deal at $6.4-billion. Husky has said MEG investors would benefit by relieving the company of its debt worries and by gaining access to Husky’s diversified markets.
The offer is one of a growing number in the Canadian oil patch, which has largely been left behind in a rebound in global energy markets. One big reason is the record discount on heavy oil versus U.S. light crude, a symptom of tight export pipeline capacity and extensive maintenance shutdowns at U.S. refineries that buy the supplies in large volumes. A major question among investors is whether a rival bid might emerge amid the uncertainty.
In its management circular filed on Wednesday in response to the bid, MEG said its financial adviser, Bank of Montreal, has already piqued interest of potential white knights. It has contacted would-be “financial and strategic partners,” it said.
“Based on the interest already received and MEG’s high quality asset and team, MEG is confident that one or more superior offers or other more attractive alternatives for shareholders will emerge prior to the expiry time," MEG said. The Husky bid is due to expire on Jan. 16.
Shares in MEG rose 8 cents to $10.79 on the Toronto Stock Exchange on Wednesday, while Husky fell 3 per cent to $19.83.
Analysts have weighed the potential benefits of combinations with such oil sands companies as Suncor Energy Inc., Imperial Oil Ltd. and Canadian Natural Resources Ltd., and have suggested none has urgent requirements to buy more bitumen production. Canadian Natural has operations that are in the same vicinity south of Fort McMurray, Alta. MEG said its operations would fit within the portfolios of many energy companies.
MEG, known for its Christina Lake steam-driven oil sands development, had been in the midst of a transition after the departure of founder Bill McCaffrey as chief executive in May. His successor, Derek Evans, took the job in August. Mr. Evans has set goals of reducing the company’s sizable debt, expanding markets and boosting production to 113,000 barrels a day by 2020, up from 98,000 in July.
“With a substantially improved balance sheet and continued focus on execution and cost control, we expect all future growth to be fully funded through internal sources, while having significant free cash flow to pay down debt and return money to MEG shareholders,” Mr. Evans said in a statement.
“None of this has been reflected in the Husky offer, which is widely acknowledged in the press and research community to be opportunistic.”
Jeffrey Jones