Cenovus Energy to acquire MEG Energy in $7.9B cash, stock transaction

Cenovus Energy (CVE) announced that it has entered into a definitive arrangement agreement to acquire MEG Energy (MEGEF) in a cash and stock transaction valued at $7.9B, 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 $27.25 in cash; or 1.325 Cenovus common shares, subject to pro-ration based on a maximum amount of $5.2B in cash and a maximum of 84.3M 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. Cenovus expects to realize approximately $150M of near-term annual synergies, growing to over $400M per year in 2028 and beyond. This includes corporate and commercial synergies as well as development and operating synergies. The acquisition is expected to be immediately accretive to adjusted funds flow per share and free funds flow per share. Cenovus has obtained fully committed financing for the transaction comprised of a $2.7B term loan facility and a $2.5B 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 financial position with liquidity of over $8B in undrawn committed credit facilities and cash on hand. 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. 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 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 $4B 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. 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.