Cenovus Energy Inc (TSX:CVE) has announced a definitive agreement to acquire MEG Energy (TSE:MEG) in a cash-and-stock transaction valued at approximately $7.9 billion, including assumed debt.
Cenovus said the acquisition strengthens its position as a leading steam-assisted gravity drainage (SAGD) oil sands producer.
Combined operations will represent more than 720,000 barrels per day of oil sands production, the lowest steam-to-oil ratio in the basin, and the largest contiguous land base in a prime resource area.
MEG’s Christina Lake project in Alberta, which holds regulatory approvals for around 210,000 barrels per day, will be consolidated with Cenovus’s adjacent assets.
The company expects to achieve approximately $150 million in near-term annual synergies, growing to more than $400 million annually by 2028.
Cenovus said the synergies will be driven by corporate, commercial, and operational efficiencies, as well as integrated development across Christina Lake.
Under the terms of the acquisition deal, Cenovus will acquire all issued and outstanding MEG common shares for $27.25 per share. The consideration will be paid 75% in cash and 25% in Cenovus shares.
Shareholders may elect to receive either cash or Cenovus stock, subject to pro-ration, with a cap of $5.2 billion in cash and a maximum of 84.3 million Cenovus shares issued.
On a fully pro-rated basis, MEG shareholders will receive about $20.44 in cash and 0.33125 of a Cenovus share for each MEG share.
Shares of Cenovus Energy added 3.4% just shy of C$22 per share on the news, while MEG shares fell 0.3% to about C$27.50.