Investment firm says MEG-Cenovus deal undermines fair bidding process

Cenovus Energy logos are on display at the Global Energy Show in Calgary, Alta., Tuesday, June 7, 2022. THE CANADIAN PRESS/Jeff McIntosh

CALGARY — An investment firm is asking the Alberta Securities Commission to investigate Cenovus Energy Inc.’s sweetened takeover offer for MEG Energy Corp., alleging it undermines what should be a fair contest.

Cole Smead, CEO and co-founder of Smead Capital Management, outlined the firm’s concerns in a letter to the commission posted on social media Wednesday.

Smead owns 1.1 million shares, or 0.5 per cent, of MEG and is also a shareholder in Cenovus and Strathcona Resources Ltd., which abandoned its rival all-stock bid late Friday.

All three companies operate steam-driven oilsands projects in eastern Alberta.

“We were looking forward to a fair and competitive bidding process between Cenovus and Strathcona to see who will be the highest priced bidder to show MEG shareholders the value of this business from an acquirer’s view,” Smead wrote.

“This process was disrupted by the public release last Wednesday by Cenovus and the MEG board announcing what seemed on its face to be a higher offer, compared to their prior agreed offer by the board.”

The missive comes a week after Cenovus raised its offer for MEG, worth $8.6 billion including assumed debt, and revised it to include a higher equity component.

MEG shareholders were to vote the next day on an earlier offer comprising 75 per cent cash and 25 per cent stock, but that meeting has been postponed until Oct. 22.

The new Cenovus bid had an implied value of $29.80 per share as of Oct. 7, compared with its earlier offer worth $28.48. It is now also made up of half cash and half stock.

But it’s another detail in the amended offer that has Smead most rankled. A standstill agreement between the two companies allows Cenovus to acquire up to 9.9 per cent of MEG’s shares in the open market before the deal closes. Cenovus says as of Wednesday, it owns 9.8 per cent of MEG.

“This is, in effect, a stuffing of the proxy ballot box to tip the scales towards the offer that rewards the board the most, but doesn’t reward the shareholders the most,” Smead wrote.

Two days after MEG and Cenovus announced the updated takeover agreement, rival bidder Strathcona Resources said it would abandon its own all-stock bid for MEG, saying the conditions of its offer could no longer be satisfied. It had an implied value of $29.67 as of Oct. 7.

“We believe that an investigation in this matter will highlight the willingness of Strathcona to continue to bid in this process if it was fair and competitive,” Smead wrote. Strathcona owns 14.2 per cent of MEG.

Cenovus declined to comment. MEG did not immediately respond to a request for comment.

Also Wednesday, proxy advisory firm Institutional Shareholder Services updated its recommendation for MEG shareholders from its earlier lukewarm endorsement.

“The original offer was neither compelling nor opportunistic, in that there were concerns with the sale process, valuation and the distribution of synergies, but the strategic rationale was logical and there appeared to be downside risks of non-approval. As such, cautionary support was warranted for the original offer,” ISS said.

“Several of these concerns have been partially mitigated by the amended offer, which has now been declared ‘best and final.’ Specifically, the distribution of synergies has improved, the headline value has increased, and price discovery has only been further facilitated.”

This report by The Canadian Press was first published Oct. 15, 2025.

Lauren Krugel, The Canadian Press