MEG Energy unlikely to find another buyer after rejecting Strathcona: expert

Cole Smead, CEO and portfolio manager at Smead Capital Management, joins BNN Bloomberg to share his outlook on the oil and energy sectors.

After MEG Energy urged its shareholders to reject a takeover proposal from rival Strathcona Resources on Monday, an expert says the Alberta-based oil company may struggle to find another buyer.

“The ‘go it alone’ approach seems very implausible because the market didn’t like that approach before the offer,” Cole Smead, CEO and portfolio manager of Smead Capital Management, told BNN Bloomberg in a Tuesday interview.

“(Investors) were effectively trading MEG like they had something wrong… their capital allocation overall, we don’t disagree with, and we think the management did a really good job. The difference though is they don’t have an anchor shareholder, a large capital allocator like Adam Waterous.”

Waterous is managing partner and CEO of Waterous Energy Fund, which owns Calgary-based Strathcona, one of the fastest growing oil companies in North America that has pursued a number of mergers and acquisitions (M&A) in recent years.

“Ultimately, when I went through (MEG Energy’s) rejection proposal they provided yesterday to shareholders, going through that deck it just says one thing: ‘If you’d like to provide us a better offer, please come with it and we will discuss it,’” Smead said.

Strathcona’s unsolicited takeover offer valued MEG at nearly $6 billion, a number MEG said was inadequate. Despite rejecting the offer, MEG’s board announced it would be launching a strategic review to explore alternatives to its current business model.

“They’re up for sale, there’s no doubt about that, the question is at what price and who’s the buyer, and in our opinion, we just don’t see another buyer out there,” said Smead.