Stock Futures Rebound Ahead of Powell Speech, Cenovus Energy Rises on MEG Acquisition Deal

Cenovus Energy rises 1% after announcing a deal to acquire MEG Energy in a $7.9B transaction. Gold prices slide 0.3% as the US dollar firms, weighing on gold's appeal to overseas buyers. Bitcoin retreats from its recent record high of $124,000, trading near $112,900. S&P 500 futures rise 0.23%, Nasdaq futures 0.17%, and Dow futures 0.32%.

Cenovus Energy Inc. has signed a cash-and-stock deal to acquire MEG Energy Corp. for $7.9 billion, including debt. This strategic acquisition follows an earlier unsolicited offer by Strathcona Resources Ltd., which was rejected by MEG. The deal is expected to bring annual cost savings and efficiencies of $150 million in 2026 and 2027, and $400 million a year in 2028 and beyond.

Cenovus, which operates adjacent oilsands properties at Christina Lake, will gain about 110,000 barrels per day of production through this acquisition. The deal is seen as a strategic move to enhance operational efficiency and reduce costs. Cenovus CEO Jon McKenzie highlighted the potential for combining the best practices of both companies to drive value in the SAGD (steam-assisted gravity drainage) method.

The acquisition offer includes $27.25 in cash or 1.325 Cenovus common shares for each MEG share, subject to a limit of $5.2 billion in cash and 84.3 million Cenovus shares. This offer represents a "modest take-under" according to Desjardins Securities analyst Chris MacCulloch, who noted that it is $1 per share less than Strathcona's offer. The deal must be approved by a two-thirds majority of MEG shareholders in a vote set for October.

Strathcona Resources, which holds a 9.2% stake in MEG, has voiced its opposition to the deal, stating that Cenovus "preyed on a weak board." Strathcona's executive chairman, Adam Waterous, said that Strathcona will continue engaging with MEG shareholders and will vote its stake against the Cenovus offer if unsuccessful.

The oilsands sector has seen a wave of consolidation in recent years, with several major international players exiting Canada and selling assets to domestic operators. The acquisition of MEG by Cenovus is part of this ongoing trend, which has seen significant consolidation among the largest Canadian operators.

Market Reactions

Following the announcement, Cenovus shares rose 7% to close at $22.68 on the Toronto Stock Exchange. MEG's stock rose 1.2% to close at $27.90, while Strathcona's shares were up slightly to $38.92. The S&P 500 futures rose 0.23%, Nasdaq futures 0.17%, and Dow futures 0.32%.

Gold prices slid 0.3% as the US dollar firmed, weighing on gold's appeal to overseas buyers. Bitcoin retreated from its recent record high of $124,000, trading near $112,900.

References:
[1] https://www.cbc.ca/news/canada/calgary/cenovus-signs-7-9b-deal-to-buy-meg-as-strathcona-says-company-is-preying-on-a-weak-board-1.7615475
[2] https://calgaryherald.com/opinion/columnists/varcoe-with-cenovus-offer-for-meg-consolidation-grows-oilsands