Delivers immediate 44% premium for MEG shareholders
Opportunity to participate in Husky's dividend, currently yielding 2.2%, with potential for future increases
Accretive to Husky's free cash flow, funds from operations and earnings while maintaining Husky's strong balance sheet
and low-risk profile
Expected $200 million in identified annual financial, operational and other synergies
Transaction will immediately deliver – and exceed – MEG's announced Vision 2020 financial targets
Better prospects for share price performance, given increased scale and enhanced financial profile
Opportunity for employees to benefit from enhanced growth and development
as part of a stronger, combined Canadian company
Husky intends to commence a takeover bid to bring offer directly to MEG shareholders
Husky to host conference call on Monday, October 1, 2018 at 6 a.m. MT (8 a.m. ET)
CALGARY, Alberta, Sept. 30, 2018 (GLOBE NEWSWIRE) -- Husky Energy Inc. (TSX:HSE) (“Husky” or the “Company”) today announced a proposal to acquire all of the outstanding shares of MEG Energy Corp. (TSX:MEG) (“MEG”) for implied total equity consideration of approximately $3.3 billion. This proposal values MEG at an implied total enterprise value of $6.4 billion, including the assumption of approximately $3.1 billion of net debt.
Under the terms of Husky's proposal, each MEG shareholder will have the option to choose to receive consideration per MEG share of $11 in cash or 0.485 of a Husky share, subject to maximum aggregate cash consideration of $1 billion and a maximum aggregate number of Husky shares issued of approximately 107 million. The share exchange ratio has been calculated based on Husky's closing share price of $22.68 as of Friday, September 28, 2018, the last trading day prior to this proposal, implying a mix of $3.21 in cash plus 0.344 of a Husky share per MEG share on a fully pro-rated basis.
Husky's proposal delivers an immediate 44 percent premium to the 10-day volume-weighted average MEG share price of $7.62 as of Friday, September 28, 2018 and a 37 percent premium to MEG's closing price of $8.03 as of that date.
Together Husky and MEG will create a stronger Canadian energy company, headquartered in Calgary, Alberta. The transaction will be accretive to Husky's free cash flow, funds from operations, earnings and production on a per share basis.
The combined company will have total Upstream production of more than 410,000 barrels of oil equivalent per day (boe/day) and Downstream refining and upgrading capacity of approximately 400,000 barrels per day (bbls/day), providing for increased free cash flow per share, production growth and a basis for potential future dividend increases.
“Husky is confident the proposed transaction is in the best interests of Husky and MEG shareholders, employees and stakeholders,” said CEO Rob Peabody. “However, to date, the MEG Board of Directors has refused to engage in a discussion on the merits of a transaction, giving us no option but to bring this offer directly to MEG shareholders.”
While Husky remains prepared to engage in discussions with MEG's Board of Directors to complete the transaction expeditiously for the benefit of MEG shareholders, it intends to commence an offer directly to MEG shareholders by way of a takeover bid so they can determine the future of their investment.
“Husky continues to deliver on our five-year plan – maintaining a strong balance sheet while reducing our cost structure, increasing our production and margins and improving our ability to generate free cash flow – we are uniquely positioned to deliver strong value to MEG shareholders,” said Peabody.
“Along our Integrated Corridor business, the physical integration of our Upstream and Downstream operations, including our committed pipeline capacity, shield us from location and quality differentials. In the Offshore business, our fixed-price contracts in Asia and high-netback Atlantic production provide for additional stability in funds from operations.”
Husky currently has more than 6,000 employees and contractors, plus an additional 2,400 skilled tradespeople working on maintenance and construction projects. The transaction will result in a stronger combined technical and operating team that can apply its expertise across a larger asset base.
The combined company will be an innovation leader in carbon capture and storage, energy efficiency, enhanced SAGD and diluent reduction technology, with greater opportunities to invest in advanced technologies that reduce CO2 emissions.
“We recognize the significant capabilities of MEG's talented team,” added Peabody. “We believe MEG and Husky employees will benefit from substantial opportunities for growth and development as part of a stronger, combined Canadian company.”
In a time of increased market uncertainty, Husky believes the combined company will have an improved opportunity to accelerate new projects in Canada compared to two separate entities.
Now in its 80th year, Husky maintains a strong commitment to Alberta and to Canada, and the communities in which it operates. Husky is one of Canada's largest private sector investors, with planned Canadian capital expenditures of more than $12 billion over its existing five-year plan. Ongoing investments include the West White Rose Project currently under construction in Newfoundland and Labrador, and a growing thermal program in Saskatchewan and Alberta.
STRATEGIC AND FINANCIAL BENEFITS
• Premium to Market Price
• Enhanced Shareholder Return Proposition With Lower Risk
• Physical Integration, Expanded Market Access and High-Netback Offshore Operations Provide Stability in Funds From Operations
• $200 Million Per Year in Near-Term, Realizable Synergies
• Immediately Achieves and Exceeds MEG's Announced 2020 Financial Targets
• Significant Upside Through Stronger Combined Platform for Shareholder Value Creation
ACCRETIVE TO HUSKY ON ALL METRICS AT STRIP PRICING
|Funds from operations (FFO)3||>$6 billion||0-5%||5-10%|
|Free cash flow3||>$1.5 billion||0-5%||10-15%|
|Upstream production||>410 mboe/day||15-20%||15-20%|
|Net debt to FFO3||~1.0x|
|1At Strip as of September 25, 2018: In 2019, WTI of $70.50 US/bbl and WTI-WCS differential of $26.26 US/bbl; In 2020, WTI of $66.45 US/bbl |
and WTI-WCS differential of $25.43 US/bbl.
2Includes transaction and other one-time costs and assumes 50% of realizable annual synergies in 2019.
3Non-GAAP measures; refer to advisory.
The proposal has been unanimously approved by Husky's Board of Directors. It is not subject to any due diligence, financing or Husky shareholder approval conditions. Husky expects that the proposed transaction will be completed in the first quarter of 2019, subject to receipt of all necessary regulatory approvals, including under the Investment Canada Act and the Competition Act.
Full details of the Offer will be set out in the formal bid circular, which is expected to be filed on Tuesday, October 2, 2018 with the Canadian securities regulators, a copy of which will then be available at www.sedar.com. The Offer will be open for acceptance until 5 p.m. Eastern Time (3 p.m. Mountain Time) on Wednesday, January 16, 2019.
The Offer will be subject to certain conditions, including that the MEG shares tendered under the Offer constitute more than 66 2/3 percent of the shares of MEG then outstanding, on a fully-diluted basis. The Offer will also be conditional upon receipt of all necessary regulatory approvals, confirmation that the MEG shareholder rights plan will not adversely affect the Offer, no material adverse effect at MEG, and other customary conditions. The Offer will not be subject to any financing conditions, and the cash component of the Offer will be financed through Husky's existing cash resources.
Copies of the Offer, once filed, will be available upon request made to Husky's Senior Vice President, General Counsel & Secretary at 707 8th Avenue S.W. Calgary, Alberta, T2P 1H5, or telephone 403-298-6111.
Goldman Sachs Canada Inc. is acting as financial advisor and Osler, Hoskin & Harcourt LLP is acting as lead legal advisor to Husky.