Author: TSX Stocks

Photo: MEG Energy

MEG Energy Christina Lake Phase 1 facility.

Strathcona Resources Ltd. has formally launched its takeover bid for fellow oilsands producer MEG Energy.

Its offer, open until Sept. 15, comprises 0.62 of a common share of Strathcona and $4.10 in cash for each MEG share it doesn’t already own.

MEG said Friday that its board as well as legal and financial advisers will consider the offer. A special committee of independent directors will assist in that review.

The target company is urging shareholders to take no action until it has made a recommendation, which it expects to do within 15 days.

Also Friday, Strathcona announced an equity commitment letter with Waterous Energy Fund, whose CEO Adam Waterous is executive chairman of Strathcona.

The fund owns almost 80 per cent of Strathcona shares, and the new investment is worth about $662 million.

“WEF’s major further investment in Strathcona reflects our view that more than eight years into building Strathcona, our best years are in front of us. As part of the offer, we are asking MEG shareholders to join us as fellow shareholders in Strathcona and trust the Strathcona team as stewards of their capital,” Waterous said in a release Friday.

“We therefore believe it is important that we eat our own cooking, ensuring no one will be more focused on increasing Strathcona’s value beyond current levels than WEF. We firmly believe Strathcona represents compelling value at this price with a large margin of safety, and that we and the partners in our fund will do very well over the long run.”

Strathcona announced its ambitions to snap up MEG earlier this month.

On a call with analysts at the time, Waterous said his company and MEG have assets so complementary they are like “doppelgangers” or “brothers from another mother.”

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.

Shortly before the MEG bid was announced, 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 for a total of $2.84 billion.

It also said it bought the Hardisty crude-by-rail terminal in Alberta for about $45 million.

Strathcona shares rose more than two per cent to $29.42 in Friday trading on the Toronto Stock Exchange. MEG shares fell almost two per cent to $24.53.

MEG’s stock has been trading higher than the value of the bid, suggesting investors believe a better offer might come along. Analysts have said competing bids may come from oilsands majors like Cenovus Energy Inc., Canadian Natural Resources Ltd. or Imperial Oil Ltd.