Adam Waterous: MEG Energy’s board is ‘grumpy’ about takeover offer

Adam Waterous, CEO of Waterous Energy Fund, joins BNN Bloomberg to discuss Strathcona's boosting bid for MEG Energy.

The founder and executive chairman of Strathcona Resources Ltd. says his company’s decision to go public with a takeover offer for MEG Energy Corp. was not well received by its board of directors, who have since accepted a rival offer that he believes is much less valuable.

“Sometimes people get grumpy when they are about to lose their job,” Adam Waterous told BNN Bloomberg in an interview Tuesday morning.

“(But) boards have fiduciary duties to not think about their personal situation and think about the benefit of the shareholders. Strathcona put the company in play by making the offer, and that was only because we tried to engage privately with the company, but they rejected any kind of dialogue.”

Waterous’ comments came a day after his firm revised its initial offer to an all-stock bid of 0.80 of a Strathcona share per MEG share it does not already own, from an earlier proposal made up of a combination of cash and stock.

Last month, however, MEG’s board announced its intention to enter into an agreement to be acquired by Cenovus Energy Inc. in a deal valued at $7.9 billion, 75 per cent payable in cash, with the remaining 25 per cent to be paid in Cenovus shares.

Waterous said Cenovus’ cash-heavy deal leaves billions of dollars on the table for MEG shareholders, which Strathcona could unlock if its offer was accepted.

“What (our offer) would result in is that MEG shareholders will own 43 per cent of Strathcona on a pro forma basis. Now, why that ends up being really important is that this deal has a huge amount of economic upside,” he said.

Cenovus’ stock jumped roughly 10 per cent in the days following the news of its deal with MEG, said Waterous, when typically, an acquirer’s share price falls after such an announcement.

That amounts to a nearly $4-billion gain in Cenovus’ stock market value that MEG shareholders are mostly unable to take advantage of, he argued, as they would only own four per cent of the company post-takeover.

“There’s been $3.9 billion left on the table by MEG shareholders with this transaction,” said Waterous.

“And the only opportunity to create that value is being part of a larger SAGD (Steam-Assisted Gravity Drainage) business. Cenovus and Strathcona are in violent agreement that (building) a bigger SAGD business by owning MEG will be able to better exploit the business.”

BNNBloomberg.ca reached out to both MEG and Cenovus for comment on Tuesday but did not receive a response.

Waterous said MEG shareholders would be able to access more than 10 times the potential stock gains from a newly combined company if they choose to accept Strathcona’s offer instead of Cenovus’. Shareholders are set to vote on the deal at a special meeting next month.

“You either want to exit, crystalize your value and sort of get off the train, or you want to actually ride the upside and stay on the train with Strathcona,” he said.

“So, these are very radically different paths for shareholders.”