Cenovus to acquire MEG Energy in C$7.9 billion oil sands expansion deal

By Vallari Srivastava and Amanda Stephenson

Aug 22 (Reuters) - Canada's Cenovus Energy CVE.TO announced on Friday it will acquire MEG Energy MEG.TO in a C$7.9 billion ($5.68 billion) cash-and-stock deal, ending weeks of speculation that it would emerge as a white knight for MEG, which is facing a hostile takeover attempt.

The deal struck with the Calgary-based Cenovus, subject to shareholder approval, tops rival Strathcona Resources' SCR.TO previously announced C$6 billion takeover offer, which MEG's board rejected in June.

It will create one of the largest oil sands companies in Canada, combining MEG's Christina Lake oil sands operations in northern Alberta with Cenovus' neighboring assets, for combined oil sands production of over 720,000 barrels per day.

The combined company aims to grow its oil sands production to over 850,000 bpd by 2028, Cenovus CEO Jon McKenzie said on a conference call on Friday.

Cenovus believes it can increase production at MEG's Christina Lake site to over 150,000 bpd by 2028, McKenzie added, by improving the site's steam-to-oil ratio and implementing better well design.

Analysts had been suggesting that Cenovus could make a bid for MEG, a smaller oil sands firm. MEG's board had launched a process to solicit other offers after calling Strathcona's bid inadequate.

But Adam Waterous, Strathcona's executive chair, said in an email to Reuters Friday that the company will continue to engage with MEG shareholders ahead of the September 15 tender deadline on its offer.

Chris MacCulloch, analyst at Desjardins, said Cenovus may need to sweeten its bid prior to the planned shareholder vote in October. The large cash component of the offer should prove more attractive than Strathcona's offer to MEG shareholders "while allowing them to participate in the superior synergy potential," he said.

Cenovus Energy's shares rose more than 4% in morning trade.

Its C$27.25 per share offer gives MEG an equity value of about C$6.93 billion, according to Reuters calculations. It represents a 27.9% premium to MEG's last close before Strathcona launched an unsolicited bid in May.

Under the deal, which includes assumed debt, MEG shareholders will receive 75% of the consideration in cash and 25% in Cenovus shares.

MEG's board has approved the deal, which is expected to close early in the fourth quarter of 2025.

($1 = 1.3915 Canadian dollars)