Husky blames Alberta curtailment, lack of pipelines for its failed MEG bid
Calgary oil producer says it didn’t win enough support for $6.4B hostile offer
Husky Energy Inc. is blaming a combination of pipeline problems and an Alberta government-mandated oil production curtailment for its failed hostile takeover bid of MEG Energy Corp.
Calgary-based oil producer Husky announced Thursday that it had not garnered enough support from MEG shareholders for its unsolicited $6.4-billion offer to buy the company and would abandon its efforts.
Investors reacted strongly to the news, with MEG shares falling as much as 40 per cent to $5.11 on Thursday from a close of $8.54 on Wednesday. Meanwhile, Husky shares rose by as much as 14.7 per cent to $17.82.
Husky cited “several negative surprises in the business and economic environment” since it launched its bid 105 days ago. Among them, the company said, was the Alberta government forcing producers to curtail production in an attempt to lift prices, and a “continued lack of meaningful progress on Canadian oil export pipeline developments.”
“Given the outcome of the tender process, Husky will continue to focus on capital discipline and the delivery of the five-year plan we set out at our investor day in May 2018,” Husky president and CEO Rob Peabody said.
The deal’s implosion is another negative signal for investors in the energy industry looking for mergers and acquisitions to lift prices, Eight Capital analyst Phil Skolnick wrote in a research note, because “it shows such situations could fall apart.”
He also said there was only a slim chance another company would consider purchasing MEG given that Husky couldn’t gain enough support from its shareholders.
“There could be the view that another party might look to be opportunistic if there is a significant decline in MEG’s share price,” Skolnick wrote, adding, “however, as shown with Husky ’s offer, there needs to be a higher offering price.”
Derek Evans, MEG’s president and chief executive officer, said the bid “did not fully recognize the quality and long-term potential” of the company. The CEO said in a statement that the company will provide an update on its 2019 business plan soon.
The lack of a deal is a negative for Husky, despite the company’s positive share price reaction.
“Accurate or not, the decision to pursue MEG does suggest some level of desire at the senior management and board level to alter the asset profile of the business, and while we don’t expect Husky to immediately pursue alternative acquisition opportunities, the risk of that will likely weigh on the shares for a period of time,” Raymond James analyst Chris Cox said in a note.
Husky said Thursday it would continue with plans to divest its retail fuel business and a refinery in Prince George, B.C.
Those asset disposition plans were announced while Husky was pursuing heavily indebted MEG and were considered to be measures to deleverage Husky after the transaction.
Husky spokesman Mel Duvall confirmed more than 50 per cent of MEG’s shares were tendered, but the number was fewer than the 66.6 per cent needed.
All of the MEG shares that had been tendered to the offer will be returned to shareholders.
MEG initially rejected the bid as an “opportunistic” offer that didn’t recognize its underlying value.
It urged shareholders again last month not to sell, pointing out that Husky’s initial offer worth $11 per share had fallen to just $8.12 per share because of a substantial decline in the value of Husky ’s stock.