MEG Energy Corp. shares rose and fell in choppy trading Thursday after it formally rejected a $3.3-billion hostile takeover offer from oilsands rival Husky Energy Inc.
The target company said after markets closed Wednesday that the Husky offer is opportunistic and undervalues its assets and prospects, adding it intends to conduct a formal process that could identify a white knight to make a better offer.
MEG’s shares rose by as much as 21 cents to $11 in morning trading on the Toronto Stock Exchange before falling back to hover near Wednesday’s close of $10.79.
Husky CEO Rob Peabody refuted MEG’s position in a news release Thursday.
“Nothing in the MEG circular changes the clear and compelling value our offer delivers to MEG shareholders,” he said. “Existing and ongoing market challenges… underscore the benefits of a Husky-MEG combination.”
Husky is offering a combination of cash or shares worth $11 for each MEG share. The maximum cash available under the deal is capped at $1 billion and the maximum number of shares is limited to 107 million.
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Husky values the transaction at $6.4 billion, including the assumption of $3.1 billion in debt.
Analysts continued to speculate in overnight reports that Husky will have to raise its bid to win over MEG’s management.
They also found it doubtful that an alternate bidder will emerge for MEG given that its only product, oilsands bitumen, is facing severely discounted prices as new oilsands production from northern Alberta makes worse an export pipeline bottleneck.
MEG’s investor presentation includes a description of its plan to achieve the regulator-approved 210,000-barrels-per-day capacity production from its Christina Lake steam-driven oilsands wells by 2028.
The cost of the growth, specified for the first time, works out to be about $2.3 billion, pointed out AltaCorp Capital analyst Nick Lupick in a report.
MEG says it is currently producing 100,000 barrels per day of bitumen and has spent substantially all the capital required to increase production to 113,000 bpd by 2020.