Canada’s MEG Energy said on September 15 that its board of directors had reaffirmed its “unanimous” recommendation that shareholders approve a proposed takeover by Cenovus Energy, rejecting a revised offer by Strathcona Resources.

This came after Strathcona sweetened its offer to acquire oil sands producer MEG earlier this month. It raised its offer from CAD6bn ($4.4bn), consisting of 0.62 of a Strathcona share and CAD4.10 ($2.98) in cash per MEG share to an all-share consideration of 0.80 of a Strathcona share per MEG share it does not already own. (See NorthAmOil Week 36)

As of the September 15 closing share price, this valued MEG at CAD7.6bn ($5.5bn) according to the Financial Post, representing around a 10% increase on Strathcona’s original hostile takeover bid. However, MEG said this week that the deal was still inferior to Cenovus’ offer, which is worth CAD7.2bn ($5.2bn) as of the September 15 closing share price, according to the Financial Post, but would consist of mostly cash.

"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," stated the chair of MEG’s board, James McFarland. "MEG shareholders would be exposed to inferior assets, an unproven track record, an overvalued Strathcona share price, significant overhang risk and governance risk,” he continued. “In contrast, the Cenovus transaction delivers an attractive price, upside potential, substantial cash and value certainty that MEG shareholders deserve."

In a September 16 response, Strathcona said it was “disappointed” that the MEG board remained committed to the Cenovus deal despite its “clearly superior” amended offer. It went on to accuse the MEG board of engaging in a “pattern of false and misleading claims”.

Since MEG and Cenovus announced their deal – which has been approved by MEG’s board but still requires the support of two-thirds of MEG shareholders – Strathcona has bought additional MEG shares, raising its stake in the company to 14.2%. Strathcona has said it intends to use these shares to vote against the Cenovus deal in the special meeting scheduled for October 9 for shareholders to vote on the transaction.

Cenovus’ CEO, Jon McKenzie, told Bloomberg last week that his company was not planning to raise its own offer for MEG despite Strathcona's higher bid.