Strathcona Resources intends to increase its stake in MEG Energy and vote against Cenovus Energy's C$7.9 billion acquisition of MEG, after MEG previously rejected Strathcona's lower bid.

A competitive landscape is unfolding in the Canadian oil and gas sector as Strathcona Resources intensifies its efforts to acquire MEG Energy (MEG.TO), challenging the previously agreed-upon acquisition by Cenovus Energy (CVE.TO). Strathcona has announced its intention to increase its stake in MEG Energy and vote against Cenovus's C$7.9 billion acquisition, setting the stage for a critical shareholder vote. This move comes after MEG Energy's board had previously rejected a lower bid from Strathcona.

The Event in Detail

Cenovus Energy announced its definitive agreement to acquire MEG Energy on August 22, 2025, in a cash and stock transaction valued at C$7.9 billion (US$5.7 billion), inclusive of assumed debt. The offer provides MEG shareholders with C$27.25 per share, structured as 75% cash and 25% Cenovus common shares. This deal had received unanimous approval from both Cenovus and MEG boards of directors, with MEG's board recommending shareholders vote in favor.

In contrast, Strathcona Resources, which initially saw its C$6 billion takeover bid rejected by MEG's board in June, has escalated its position. Strathcona now plans to increase its ownership in MEG Energy from 9.2% to approximately 14.2% by acquiring over 6 million additional shares for an estimated C$172.7 million (US$125 million). Concurrently, Strathcona has presented an amended, all-stock takeover offer for MEG Energy, proposing 0.80 of a Strathcona common share for each MEG share not already owned. This revised offer values MEG at C$30.86 per share, representing an 11% premium over the Cenovus deal's valuation of C$27.79 per MEG share, based on September 5, 2025, volume-weighted average share prices.

MEG shareholders are scheduled to vote on the Cenovus deal on October 9, 2025, with a two-thirds majority required for approval. If the Cenovus acquisition proceeds, the combined entity would become one of Canada's largest oil sands companies, with projected oil sands production exceeding 720,000 barrels per day.

Analysis of Market Reaction

The competing bids from Cenovus and Strathcona present MEG Energy shareholders with distinctly different strategic paths. Cenovus's offer emphasizes a significant cash component, providing a more immediate and certain return. This acquisition is anticipated to reinforce Cenovus's position in the Steam-Assisted Gravity Drainage (SAGD) oil sands production and generate substantial synergies, estimated at C$150 million annually in the near term, growing to over C$400 million per year by 2028.

Strathcona, however, argues that the Cenovus deal is "lopsided" and the MEG board's sales process "broken." Strathcona highlights that while Cenovus's stock price increased by approximately 10% following its deal announcement with MEG, equating to an approximate C$3.9 billion gain in market value for Cenovus, MEG shareholders would only own about 4% of the combined entity. In contrast, Strathcona's all-stock offer would allow MEG shareholders to retain 43% ownership in the combined company, offering continued participation in future growth.

Broader Context & Implications

This takeover battle is symptomatic of an ongoing consolidation trend within the Canadian oil sands sector, driven by a focus on efficiency, scale advantages, and optimized capital allocation. Companies are seeking to strengthen their positions amidst strong energy demand and evolving geopolitical factors. The differing offers underscore a fundamental decision for MEG shareholders: whether to opt for a cash-heavy exit with limited future upside in the acquiring entity or embrace a vision of long-term equity participation in a combined entity.

On September 8, 2025, MEG shares rose 2.3% to C$29.02 on the Toronto Stock Exchange, reflecting the increased competitive tension. Cenovus stock saw a slight increase, while Strathcona's shares experienced a modest decline.

Expert Commentary

Adam Waterous, Executive Chairman of Strathcona Resources, has been a vocal critic of the Cenovus deal and MEG's board process. He stated:

"Congratulations, MEG board — you are in first place in the last 20 years for leaving the most amount of money on the table for your shareholders. You win the prize."

Waterous further emphasized the divergent paths presented by the two offers:

"These are two radically different paths. One is a cash exit, leaving Cenovus a $3.9-billion gain. And the second is you're not getting off the train, you stay on the train and you try to capture that over time."

He also expressed strong sentiment regarding shareholder satisfaction:

"I have not spoken to a single MEG shareholder who is happy with the MEG board deal with Cenovus. This is going to be taught in business schools about boards of directors' dereliction of fiduciary duty."

Looking Ahead

The upcoming shareholder vote on October 9, 2025, is poised to be a pivotal moment for MEG Energy and the Canadian oil sands landscape. Strathcona's increased stake and public opposition could significantly influence the outcome, putting pressure on Cenovus to potentially sweeten its offer, perhaps with a greater equity component. The decision by MEG shareholders will not only determine the immediate future of the company but also shape the strategic trajectory of one of Canada's most valuable energy assets within a consolidating industry. Investors will closely monitor further developments leading up to the vote, as well as any potential revised offers from either party.