ISS Gives Lukewarm Endorsement to Cenovus Offer for MEG Energy
(Bloomberg) -- A prominent shareholder adviser recommended investors vote in favor of Cenovus Energy Inc.’s C$7.3 billion ($5.2 billion) takeover of MEG Energy Corp., boosting the oil producer’s bid to consolidate Canada’s oil sands sector.
The transaction offers MEG holders “an opportunity to participate in the upside potential of the combined company, albeit only partially, and there appears to be downside risk of non-approval,” Institutional Shareholder Services Inc. said in a report to clients. “Cautionary support for the transaction is warranted.”
Cenovus’s offer is to be paid three-quarters in cash and a quarter in stock, a bid that’s worth about C$28.75 per MEG share, based on market prices early Friday afternoon. Cenovus expects the acquisition to close in the fourth quarter, subject to regulatory and shareholder approvals. MEG holders vote on Oct. 9.
MEG’s shares are up 18% over the past year, trading at C$28.68 as of 1:23 p.m. in Toronto.
While the offer is “neither compelling nor opportunistic,” it should be assessed in the context of industry consolidation and limited potential bidders, according to ISS.
“The universe of potential acquirers is limited, and CVE appears to be the most logical,” ISS said, adding that 15 companies participated in the sale process that culminated in the Cenovus bid.
Both companies’ boards back the transaction, which would push Cenovus’ output above 720,000 barrels a day and cement its place among the top oil sands producers.
The endorsement arrives 11 days after MEG’s board turned down Strathcona Resources Ltd.’s sweetened offer to buy the oil sands producer, recommending that shareholders stick with the Cenovus proposal.
Strathcona, controlled by former investment banker Adam Waterous, offered 0.8 of a share for each share of MEG. The new offer was about 10% higher than Strathcona’s original takeover bid made in May and tops the price Cenovus agreed last month to pay for MEG.
“Strathcona is pleased that ISS has only provided ‘cautionary support’ for the MEG board deal with Cenovus,” Waterous said in an email, adding that the ISS report says “it would not be unreasonable” for shareholders to reject the offer.
An impending deal reflects the accelerating consolidation of Canada’s oil sands, where rising costs and investor pressure have thinned the ranks of midsize operators. Cenovus, which absorbed Husky Energy Inc. in 2021, is betting the enlarged platform will generate stronger free cash flow and give it leverage to boost dividends and buy back stock.
MEG and Cenovus did not immediately respond to requests for comment.
©2025 Bloomberg L.P.
