7 days ago
MEG Energy's hostile bidder says government support for rival offer would be unfair subsidy
The hostile bidder for MEG Energy Corp. MEG-T believes any rival offer that includes government support, such as loan guarantees, for Indigenous partners would amount to an unfair subsidy rarely seen in Canadian private-sector auctions.
'Any Indigenous purchase funded through a government backstop would be a direct subsidy to the private-sector partner,' Adam Waterous, executive chairman of Strathcona Resources Ltd. SCR-T, told The Globe and Mail in a statement Tuesday.
He was responding to a Bloomberg News report that Cenovus Energy Inc. CVE-T is in talks with two Alberta First Nations to jointly launch an offer for MEG that could be backed by financial support from federal and provincial governments.
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Mr. Waterous launched a hostile bid for MEG in May, but the oil sands producer rejected the overture and launched a strategic review to solicit any rival offers. On Tuesday, MEG's shares climbed 2 per cent after Bloomberg's report.
The report, citing people familiar with the discussions, identified Chipewyan Prairie First Nation and Heart Lake First Nation as potential bidders alongside Cenovus.
Prime Minister Mark Carney has put Indigenous participation among the list of criteria for 'nation-building' projects his government wants built to juice the Canadian economy amid the trade war with the United States. However, the government has not discussed this initiative in the context of an active corporate takeover campaign.
As a rival bidder for MEG, Mr. Waterous has a natural opposition to government support for another bid that could lower the cost of financing the takeover. However, he is in a unique position because Strathcona is also MEG's second-largest shareholder with a 9.2-per-cent stake. If the rival bid topped Strathcona's own purchase price for MEG, Strathcona would benefit as a shareholder.
But Mr. Waterous believes government support could set a dangerous new precedent. 'Canadian governments historically have not been in the business of using taxpayer money to provide multibillion-dollar subsidies to $45-billion-size enterprises on a one-off basis in the middle of a competitive process,' he said. (Cenovus alone has a $37-billion market value, and combining with MEG would boost that figure.)
'That behaviour might happen in Venezuela or Russia but historically has not happened in Canada,' he added. 'As a result, we would be highly surprised if there is any truth to this report. In our experience, when the government does provide financing to the private sector there is a robust, formal and open process to ensure taxpayers and other private market participants are treated fairly.'
Officials with Cenovus, Chipewyan Prairie First Nation, Heart Lake First Nation and MEG Energy did not respond to requests for comment.
Potentially complicating matters are board positions held by two directors with ties to Alberta Indigenous Opportunities Corp., a provincial agency that provides financial guarantees for First Nations and Métis communities to participate in the natural-resources and other industrial sectors.
AIOC chief executive officer Chana Martineau joined Cenovus's board of directors in May, while Gary Bosgoed, the agency's vice-chair, has been a director of MEG Energy since 2022.
Officials with AIOC were not immediately available for comment.
Strathcona announced its unsolicited cash-and-stock offer for MEG on May 15, saying the two oil sands-producing entities are highly complementary in geography, operations, reserve-life indexes and profit margins.
MEG Energy's board has urged its investors to reject the offer, saying it undervalues the company. MEG's board has said its own search for strategic alternatives could yield a higher offer.
Despite Mr. Waterous's opposition, there are recent examples of federal and provincial backstops used to help Indigenous groups finance acquisitions of major projects, and more are expected as companies seek expansions of key infrastructure.
In May, Stonlasec8 Indigenous Alliance Limited Partnership, a consortium of 36 First Nations, secured a $400-million federal guarantee to finance its purchase of a minority interest in Enbridge Inc.'s ENB-T British Columbia natural-gas pipeline network. The guarantee was the first such deal under Ottawa's $10-billion program aimed at securing more Indigenous participation in major industrial projects.
In recent months, Cenovus CEO Jon McKenzie has said he is focused on organic growth, and the company has gotten into trouble before over adding too much debt after promising investors it would fix its balance sheet.
However, multiple reports have named Cenovus as a potential bidder for MEG. Despite the cost, Cenovus is the producer most capable of generating solid synergies in any takeover because its operations are near MEG's in the Christina Lake region.
