MEG Energy postpones shareholder vote on Cenovus $6 billion merger

The months-long battle for control of Canada’s last pure-play company in the oil sands sector took on a new twist on Tuesday when MEG Energy Corp. postponed an upcoming meeting where shareholders were scheduled to vote on Cenovus Energy’s proposed takeover.

Cenovus has exercised its contractual rights to postpone the meeting. MEG announced that it will now be held on 30 October, instead of Wednesday. Cenovus will have more time to convince investors of its offer. It has already sweetened it once, after MEG shareholders complained that the initial bid was too low. Cenovus reported on Tuesday that 63% of MEG shareholders were in favor of the deal, or over 75% if Strathcona Resources is excluded, who are presumed to have voted against it. Cenovus needs to have at least two-thirds of MEG shareholders, or just under 66%, support its offer in order for it to be successful.

Strathcona is a smaller company than Cenovus, and it's backed by Waterous Energy Fund. Strathcona owns or controls 14% of MEG. Strathcona announced on 10 October that it would abandon its own hostile offer for MEG after Cenovus increased its bid to C$8.6 Billion ($6.17 Billion), including debt.

MEG's Board supports Cenovus revised bid. However, the merger process was more controversial than usual for Canadian oil patch.

Adam Waterous (executive chair of Strathcona) accused Cenovus, of using "fear and deception to keep a newcomer at bay", of "preying on MEG's Board", which he had publicly criticized as weak.

Waterous also criticised MEG's refusal to waive the standstill agreement to allow Cenovus, in the run-up to the voting, to buy more shares of the company. Cenovus increased its stake in the firm to almost 9.8% to vote for its own offer.

Three MEG shareholders said last week that they had filed complaints with Alberta Securities regulator regarding the lifting of standstill agreement, and what they viewed as the board's attempts to tilt the sale process in Cenovus’s favor.

Anup Srivastava is a corporate governance specialist at Haskayne School of Business, University of Calgary. He said that Cenovus’s deal was the best on the table and would likely be approved.

He said: "If 63% of people have already voted for it, it means that the majority believes it is worth it." It's just not everyone votes. There are many passive investors out there.

MEG's Christina Lake project is a valuable asset because of its low operating costs, long-term reserves and the potential for growth in production. This is one of only a few large-scale opportunities for expansion in Canada's Oil Sands. The industry has been dominated by domestic companies since the departure of foreign players over the last decade.

(source: Reuters)