MEG Energy Holders Pan ‘Laughable’ Strathcona Takeover Bid

(Bloomberg) -- Some MEG Energy Corp. shareholders say they’re unimpressed with a potential takeover offer from rival oil producer Strathcona Resources Ltd. 

Shares of MEG surged as much as 34%, the most intraday since April 2020, after Strathcona said overnight that it intends to make a shares-and-cash bid valuing the company at around C$6 billion ($4.3 billion), or C$23.27 per share. 

“I find the bid laughable and tremendously undervalues the company,” said Eric Nuttall, partner and senior portfolio manager with Ninepoint Partners, which owned 12 million shares of MEG Energy as of December, according to data compiled by Bloomberg. “This is a bit opportunistic and taking advantage of extremely weak sentiment and a depressed oil price.”

Nuttall, whose firm is among MEG’s largest shareholders, said he doesn’t want to see the company start a strategic review right now because its valuation is too low. Instead, he wants MEG to “continue with their plan of meaningful share buybacks over the next five years.”

Shares of MEG were trading up 17% at C$24.87 — above Strathcona’s potential bid — as of 10:39 a.m. in Toronto, suggesting investors expect a higher offer. Strathcona was down more than 2%. 

Nuttall wasn’t alone in saying the deal undervalued MEG. The offer is “an affront to MEG shareholders and highly unlikely to be accepted,” Desjardins analyst Chris MacCulloch wrote in a Friday morning note. He speculated that Canadian Natural Resources Ltd., Cenovus Energy Inc., Suncor Energy Inc., Imperial Oil Ltd. or ConocoPhillips Co. could all make a bid.

“We expect MEG to sell at a premium relative to the initial SCR offer, either through the emergence of a white knight or a sweetened bid,” MacCulloch said.

MEG, for its part, urged investors to take no action until it reviews the offer. The company has engaged BMO Capital Markets as a financial adviser.

“This is like a poker game and the flop just came out,” said Cole Smead, chief executive officer of Smead Capital Management, which owns shares in both oil producers. Bankers are likely “sprinting” to Cenovus’ offices today to sound out whether they would bid for MEG as well, he said. 

Strathcona’s offer, which is 9% higher than MEG’s closing price on Thursday, “isn’t going to stand for now” and the premium would typically need to be 25% to 30% to entice shareholders, he added.

Still, he expects Strathcona will eventually be the company to close the deal for MEG. “MEG provides the right asset and a lot more liquidity” for Strathcona, Smead said.

“I don’t think this is the final offer,” said David Szybunka, senior portfolio manager at Canoe Financial, another MEG investor.

He said Strathcona’s bid has put in MEG in play and firms including Suncor, which may have been considering deals over a longer time horizon, will now need to sharpen their focus and consider whether they want to buy now.

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