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(Reuters) – Canadian oil and gas producer Strathcona said late Thursday it plans to launch a C$5.93 billion ($4.25 billion) hostile takeover bid for rival MEG Energy, aiming to create one of the country’s largest oil sands companies.
The all-cash-and-stock unsolicited offer would combine two of Canada’s largest pure-play thermal oil sands operators, and make Strathcona Canada’s fifth-largest oil producer.
Strathcona said it first made an offer to MEG’s board on April 28, but was turned down on May 13.
Strathcona has already built a nearly 9% stake in MEG through market purchases earlier this year. It said it plans to formally file its offer in the next two weeks and is still open to talks with MEG’s board.
MEG said on Friday its board will review the offer and urged shareholders to take no action for now.
Strathcona is offering 0.62 of its share and C$4.10 in cash for each MEG share, valuing the bid at C$23.27 per share — a 9.3% premium to MEG’s last closing price.
Desjardins analysts said the offer is highly unlikely to be accepted, adding that the “modest” premium would likely attract competing offers from larger oil sands players.
Strathcona said it would fund the cash portion of the deal through a bridge loan from lenders.
Strathcona’s main stakeholder, Waterous Energy Fund, which owns nearly 80% of the company’s shares, plans to increase its investment.
If the deal goes through, MEG shareholders would own 37.8% of the combined company.
Waterous would hold just over half, including the new shares.
Strathcona said it was targeting C$175 million in annual cost savings, including lower spending on operations, capital, and interest.
Strathcona’s bid also comes after it recently sold its Montney assets for about C$2.84 billion and bought the Hardisty Rail Terminal to focus on core heavy oil operation.
($1 = 1.3944 Canadian dollars)
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