Canada's Strathcona sweetens MEG Energy bid to top Cenovus offer

By Amanda Stephenson and Arunima Kumar

Sept 8 (Reuters) - The bidding war for Canadian oil sands producer MEG Energy MEG.TO heated up on Monday as Strathcona Resources SCR.TO raised its offer, seeking to outbid larger rival Cenovus Energy CVE.TO.

The battle for MEG, Canada's last large pure-play oil sands company, continues a years-long trend of domestic consolidation in the country's oil sands. The play is now mostly controlled by a handful of large Canadian companies after foreign players largely exited over the last decade.

MEG's Christina Lake oil sands project has become a prized asset, with its long reserve life, low operating costs, and significant potential for production growth making it one of the few large-scale expansion opportunities.

Strathcona said its revised offer values MEG at C$30.86 per share, above the C$27.79 valuation of Cenovus' August cash-and-stock agreement. Strathcona had proposed C$23.27 per share in its initial hostile bid in May.

The new offer, which expires on October 20, gives MEG an equity value of about C$7.85 billion ($5.68 billion), according to Reuters calculations.

Since 2020, Strathcona has become one of the fastest-growing oil companies in North America through a series of acquisitions.

The company, backed by private equity firm Waterous Energy Fund, has been building its position in MEG, disclosing it owns or controls about 14.2% of the company's shares.

It said the company will vote against the Cenovus transaction at an October 9 shareholder meeting, where two-thirds approval is required.

"We're not playing just to defeat Cenovus, we're here to buy the business," Strathcona founder and Executive Chair Adam Waterous said in an interview on Monday.

MEG's board has backed Cenovus' offer, which would combine its Christina Lake operations with Cenovus' adjacent assets, creating one of Canada's largest oil sands producers with output of more than 720,000 barrels per day.

Cenovus shareholders had reaped nearly C$3.9 billion in market value gains after the deal was unveiled last month, while MEG investors were left with limited upside.

Strathcona called the Cenovus deal "lopsided" and accused MEG's board of running a "broken sale process" that excluded its earlier overtures.

"We put (MEG) in play, and now they've very transparently adopted an 'anyone but Strathcona' view,'" Waterous said.

Strathcona's aggressive pursuit of MEG is unusual given how rare hostile takeover attempts are in the Canadian oil sector, said Cole Smead of Smead Capital Management, who holds all three stocks in his portfolio. But Canadian oil sands companies must get bigger to compete effectively on the international scene, he added.

"This is a shock to the system for the Canadian markets," Smead said. "But scale is the name of the game."

MEG said in a statement on Monday afternoon it would evaluate Strathcona's revised offer and respond on or before September 15.

Cenovus did not respond to Reuters' request for comment.

MEG's stock price closed at C$29.02, up 2.4%, while Strathcona closed down 0.3% at C$38.31.

Cenovus shares gained one cent to close at C$22.12.

($1 = 1.3816 Canadian dollars)