CALGARY — The executive chairman of Strathcona Resources Ltd. says his company aims to join two complementary oilsands players with its unsolicited takeover bid for MEG Energy Corp., but one analyst calls the $5.9 billion being offered an "affront" to shareholders.
"I am actually not aware of two businesses of any scale in North America that share this level of complementary nature," Adam Waterous told analysts on a conference call Friday.
"These are doppelgangers, brothers from another mother ... identical twins."
Strathcona and MEG both extract bitumen using steam-driven techniques in eastern Alberta and don't have fuel refining or retail businesses like some bigger oilsands players.
Earlier this week, Strathcona signalled its plans to become a pure-play heavy oil company when it announced the sale of its Alberta shale natural gas operations in three separate deals with a total of $2.84 billion.
It also said it has bought the Hardisty crude-by-rail rail terminal in Alberta for about $45 million.
A takeover of MEG would further that strategic shift, Waterous said.
"If someone's interested in a lower-risk, long-life, low-decline, high-free-cash-flow oil business of scale in North America, we think that this is going to be the business to own."
Strathcona, which disclosed late Thursday it owns about a 9.2 per cent stake in MEG, said it sent a takeover offer to the MEG board of directors in April, but was rejected earlier this week.
"Strathcona respects the MEG board's right to dismiss any offer made for MEG, and it has no reason to believe that its decision to dismiss Strathcona's proposal was not made in good faith," the company said in a late Thursday news release.
"However, Strathcona believes the benefits of a combination of Strathcona and MEG are significant enough that MEG Shareholders should have the opportunity to decide for themselves."
MEG said Friday that its board of directors will consider and evaluate the Strathcona offer once it has been received and urged shareholders to take no action until it has made a recommendation.
Strathcona is offering 0.62 of a Strathcona share and $4.10 in cash per MEG share in the proposal worth $23.27 per MEG share based on the closing price of its shares on Thursday.
MEG shares shot higher in late-morning trading Friday, topping the implied value of the takeover offer and suggesting investors believed a higher bid might be possible.
MEG shares were up $3.66 or about 17 per cent at $24.96 in trading on the Toronto Stock Exchange.
Desjardins Securities analyst Chris MacCulloch said Strathcona is offering a "modest" 9.3 per cent premium and competing offers are likely to come from bigger oilsands players like Canadian Natural Resources Ltd., Cenovus Energy Inc., Suncor Energy Inc., Imperial Oil Ltd. or ConocoPhillips.
"Although we are naturally supportive of further consolidation of the Canadian oilsands to create a stronger and more resilient sector, we view the (Strathcona) takeover offer as an affront to MEG shareholders and highly unlikely to be accepted," he wrote in a note to clients.
Strathcona said it is ready to engage with the MEG board and would also support a strategic alternatives process to determine if a superior transaction is available.
"Strathcona would be willing to participate constructively and in good faith in such a process, including signing a mutual confidentiality agreement to share non-public information, provided it is not required to sign a standstill agreement," the company said.
Strathcona said a combination with MEG would create Canada's fifth largest oil producer and fourth largest steam-assisted gravity drainage producer, with among the largest proved oil reserves in North America.
It said it has identified $175 million in annual synergy opportunities, including $50 million in overhead reduction costs, if the deal goes ahead.
The offer came as Strathcona raised its quarterly dividend and reported a first-quarter profit of $205.3 million or 96 cents per diluted share, up from $100.6 million or 47 cents per diluted share a year earlier.
The company said it will now pay a quarterly dividend of 30 cents per share, up from 26 cents per share.
Oil and natural gas revenue totalled $1.33 billion, up from $1.17 billion in the first quarter of 2024.
Production for the quarter totalled 194,609 barrels of oil equivalent per day for the quarter ended March 31, up from 185,122 a year earlier.
This report by The Canadian Press was first published May 16, 2025.
Companies in this story: (TSX: SCR, TSX: MEG, TSX: SU, TSX: IMO, TSX: CVE, TSX: CNQ)
Lauren Krugel, The Canadian Press
