MEG Energy unanimously rejects Husky Energy's $2.34 billion acquisition offer
CALGARY -- MEG Energy Corp. has announced its board of directors has unanimously determined that Husky Energy's unsolicited bid to acquire MEG significantly undervalues the common shares of MEG and is not in the best interests of MEG or the holders of common shares.
On October 2, 2018, Husky made a formal offer to acquire all of the issued and outstanding common shares, at the election of the MEG Shareholder, for (i) $11.00 in cash or (ii) 0.485 of a common share of Husky for each common share, subject to a maximum aggregate cash consideration of $1 billion and a maximum aggregate number of Husky Shares of approximately 107 million. The Husky Offer must remain open until at least January 16, 2019 unless otherwise extended, accelerated or withdrawn in accordance with its terms.
In June, the board completed a comprehensive strategic review of MEG's business plan, operations and financial condition and considered alternatives available to support MEG's corporate strategy and enhance MEG Shareholder value. In August, the board appointed a new CEO, Derek Evans, to execute upon MEG's business plan, pursuant to which the board and management expect to generate substantial free cash flow for MEG over the next several years.
Upon receipt of the Husky Offer, the board, operating through a special committee, engaged with financial and legal advisors to diligently review the Husky offer. The board has unanimously concluded that the Husky offer significantly undervalues the common shares, is not in the best interests of MEG or MEG shareholders and recommends that MEG shareholders reject the Husky offer and not tender their common shares.
"The Husky Offer significantly undervalues MEG's assets, technology, expertise and business prospects. Over the last few years, there has been a substantial transformation of our business, culminating in the appointment of a top-rated CEO and the strengthening of our management team. Since the start of 2017, the company has successfully sold non-core assets, reduced debt and significantly extended our remaining debt maturities. MEG is now at an inflection point with a low risk business plan and a clear line of sight to significant free cash flow generation commencing in 2019," said Jeffrey J. McCaig, chairman of the board.
The board today filed its directors' circular, which provides information for MEG Shareholders about MEG's prospects and the board's analysis, deliberations and recommendations.
Mr. Derek Evans, MEG's CEO, said, "I took over the leadership of MEG because I believe that our assets and technologies set us up for an exciting period of growth and MEG shareholder value creation. With a substantially improved balance sheet and continued focus on execution and cost control, we expect all future growth to be fully-funded through internal sources, while having significant free cash flow to pay down debt and return money to MEG shareholders. All of these uses of our capital will drive significant MEG shareholder value. None of this has been reflected in the Husky offer which is widely acknowledged in the press and research community to be opportunistic. We urge MEG shareholders to reject the Husky offer."
In its directors' circular, the Board describes the reasons for its recommendations. Among other things, the Board notes:
MEG's stand-alone plan is worth substantially more than the value proposed to be delivered by Husky in the Husky Offer. MEG is producing approximately 100,000 bpd and has spent substantially all the capital required to increase production to 113,000 bpd by 2020. MEG expects that it can continue to produce at these levels, with a minimal decline rate, for approximately 40 years. The company has 2.8 billion bbl of proved plus probable reserves with a $18.9 billion of before-tax present value (10% discount rate) as assessed by GLJ Petroleum Consultants Ltd. MEG's independent reserves evaluator, as of December 31, 2017 and using GLJ's January 1, 2018 pricing models. The Board expects MEG to generate significant free cash flow from 2019 onward.
"When Husky approached MEG in August, the board and its special committee engaged with financial advisors and fully analyzed Husky's non-binding proposal," said Timothy Hodgson, chairman of the special committee. "We told Husky then, after our full review, that its non-binding proposal was insufficient and highlighted numerous reasons for that conclusion. Instead of increasing the consideration under its non-binding proposal or continuing to engage with our board, Husky is attempting to cajole MEG shareholders into selling their common shares at the offered price. We encourage MEG Shareholders to reject the Husky Offer."
