'Fundamentally unattractive': MEG urges shareholders to reject latest Strathcona bid

Oilsands developer MEG Energy Corp.'s board of directors is urging shareholders to reject a sweetened hostile bid from Strathcona Resources Ltd., deeming it inferior to the lower — but more cash-heavy — friendly offer from industry heavyweight Cenovus Energy Inc.

Strathcona's initial overture this spring was a combination of cash and stock. When the new bid was announced last week, it was worth $30.86 a share, up from $28.02.

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. On a fully pro-rated basis, it would amount to $20.44 in cash and about one-third of a Cenovus share.

"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," MEG board chairman James McFarland said in a news release Monday.

"MEG shareholders would be exposed to inferior assets, an unproven track record, an overvalued Strathcona share price, significant overhang risk and governance risk."

By contrast, McFarland said, the Cenovus deal provides the share price growth potential, cash and certainty that MEG shareholders deserve.

Cenovus and MEG have side-by-side oilsands properties at Christina Lake, south of Fort McMurray, Alta., and both companies have touted the efficiencies and cost savings that could be achieved if they were to join forces.

"Through our engagement with MEG Shareholders, we have heard overwhelming acknowledgment of the industrial logic of the Cenovus transaction," said MEG chief executive Darlene Gates.

Strathcona, which also has steam-driven oilsands operations in the region, has called the Cenovus deal "lopsided" and the MEG board's sale process "broken" for accepting it.

The updated Strathcona bid also includes a special distribution worth about $4.18 per share if that deal were to be successful. MEG said Monday that the distribution would not benefit shareholders because it would reduce the market value of the combined company.

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 per cent interest in MEG against the deal. Its own offer is open until Oct. 20.