Cenovus Energy Inc. announced that it has entered into a definitive arrangement agreement to acquire MEG Energy Corp. (TSX: MEG) (“MEG”) in a cash and stock transaction valued at $7.9 billion, inclusive of assumed debt.

Under the terms of the agreement, Cenovus will acquire all of the issued and outstanding common shares of MEG for $27.25 per share, which will be paid 75% in cash and 25% in Cenovus common shares. Each MEG shareholder will have the option to elect to receive, for each MEG common share (i) $27.25 in cash; or (ii) 1.325 Cenovus common shares, subject to pro-ration based on a maximum amount of $5.2 billion in cash and a maximum of 84.3 million Cenovus common shares. On a fully pro-rated basis, the consideration per MEG common share represents approximately $20.44 in cash and 0.33125 of a Cenovus common share.

Transaction Highlights

Reinforces Cenovus’s position as the pre-eminent SAGD oil sands producer – The acquisition brings together two leading SAGD oil sands producers with combined oil sands production of over 720,000 barrels per day (bbls/d), the lowest steam-to-oil ratio and the largest land base in the best quality resource area in the basin.
Exceptional asset fit – Consolidates adjacent, fully contiguous and highly complementary assets at Christina Lake, enabling integrated development of the region and unlocking significantly accelerated access to previously stranded resource.
Over $400 million of annual synergies – Cenovus expects to realize approximately $150 million of near-term annual synergies, growing to over $400 million per year in 2028 and beyond. This includes corporate and commercial synergies as well as development and operating synergies which leverage both companies’ technical expertise and the ability to integrate future development across the Christina Lake region.
Immediately accretive – The acquisition is expected to be immediately accretive to adjusted funds flow per share and free funds flow per share.
Maintains strong balance sheet and continued focus on shareholder returns – The transaction has been structured to preserve Cenovus’s strong balance sheet and investment grade credit ratings, with expected pro forma net debt of <1 times adjusted funds flow (AFF) at strip pricing. Cenovus will retain a robust financial framework and continue to balance deleveraging with meaningful shareholder returns.
“This transaction represents a unique opportunity to acquire approximately 110,000 barrels per day of production within some of the highest quality, longest-life oil sands resource in the basin, which sits directly adjacent to our core Christina Lake asset,” said Jon McKenzie, Cenovus President & Chief Executive Officer. “The magnitude of synergies that we have identified makes this a compelling value creation opportunity for Cenovus shareholders. The team at MEG has done a fantastic job developing these assets, and we look forward to leveraging our combined expertise and scale to drive additional value for many years to come.”

Financing plan

Cenovus has obtained fully committed financing for the transaction comprised of a $2.7 billion term loan facility and a $2.5 billion bridge facility, which will be used to fund the cash component of the transaction. Cenovus anticipates initiating a senior debt offering to replace the bridge facility.

Upon completion of the transaction, Cenovus will maintain its strong financial position with liquidity of over $8 billion in undrawn committed credit facilities and cash on hand. The company remains committed to a strong balance sheet and investment grade credit ratings. Pro forma net debt is expected to be approximately $10.8 billion, representing less than one times AFF at strip pricing.

The fully committed term loan and bridge facilities have been provided by Canadian Imperial Bank of Commerce and JP Morgan Chase Bank as Co-Underwriters and Joint Bookrunners.

Update to shareholder returns framework

Upon closing of the transaction, the company intends to adjust its shareholder returns framework, continuing to balance deleveraging with meaningful shareholder returns. Under the adjusted framework, while net debt is above $6.0 billion, the company will target to return approximately 50% of excess free funds flow (EFFF) to shareholders, with the remainder allocated to deleveraging. When net debt is between $6.0 billion and $4.0 billion, the company will target to return approximately 75% of EFFF to shareholders, with the remainder allocated to deleveraging. The long-term net debt target of $4.0 billion remains unchanged, and upon reaching the target, Cenovus will target to return approximately 100% of EFFF to shareholders. Cenovus will actively review opportunities to accelerate deleveraging and shareholder returns.

Timing and approvals

The transaction has been unanimously approved by the Board of Directors of both companies. Cenovus expects the acquisition to close in the fourth quarter of 2025, subject to the satisfaction of customary closing conditions, including regulatory approvals and approval of the transaction by MEG shareholders. The transaction is not subject to any financing contingency.

Advisors

Goldman Sachs Canada Inc. and CIBC Capital Markets are acting as financial advisors to Cenovus. McCarthy Tétrault LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP are acting as legal advisor to Cenovus.
Source: Cenovus