Husky Energy Inc.’s chief executive officer discussed a potential acquisition of MEG Energy Corp. with the one of the oil sands producer’s largest shareholders weeks before the investor quit MEG’s board in frustration over the company’s direction.
Rob Peabody, CEO of Husky – which launched a $3.3-billion takeover bid for MEG on Sunday – met with Daniel Farb, managing director of Highfields Capital Management, on May 31, three weeks after making an initial approach to MEG’s chairman, according to Husky’s offer circular, which was released on Tuesday.
The document said Mr. Farb indicated he would be open to exploring a combination of the two Calgary-based oil companies if it meant shareholders could extract a rich premium for the stock, which had long been under pressure. Mr. Farb told the Husky chief he should submit an expression of interest to MEG’s board.
The circular shows Husky’s interest in acquiring MEG goes back nearly five months, and that it sought a friendly deal well into August. Mr. Peabody first met with MEG chairman Jeff McCaig on May 9 to discuss a merger. MEG’s founder, Bill McCaffrey, had announced he was stepping down as CEO. Derek Evans was named to the job in early August.
In June, Mr. McCaig told Mr. Peabody his board was not prepared to share non-public information, and that if Husky wanted to make a proposal, he should send it and the board would consider it, according to the circular.
Just over a month later, Mr. Farb issued a news release announcing he had resigned from the board, citing dissatisfaction that the company was not putting the interests of shareholders first. A representative of Mr. Farb declined to comment on Tuesday. With a 9.9 per cent stake, the Boston-based fund is MEG’s second-largest shareholder after China’s CNOOC Ltd.
Husky is offering $11 cash or 0.485 of a Husky share for each MEG share, a premium of 37 per cent over MEG’s closing price on Friday of $8.03 on the Toronto Stock Exchange. MEG shares closed at $10.87 on Tuesday. Husky closed at $20.57.
Analysts have said they do not see an obvious rival bidder, although it is still very early in the process.
According to the circular, Mr. Peabody last met with MEG directors on Aug. 20, and was told that the board had hired financial and legal advisers, and had determined “there was no basis” to keep discussing a potential deal.
Husky went public with its unsolicited bid on Sept. 30.
MEG Energy, known for its Christina Lake oil sands project in Alberta, has spent the past few years cutting spending and selling assets to reduce its debt as Canadian bitumen prices have swooned. It has yet to issue a detailed response to Husky’s unsolicited bid, but has urged shareholders to take no action until it does.
Husky, which produces oil and operates refineries, has said its takeover of MEG would strengthen both companies and bring annual financial and operational savings of $200-million.
The offer remains open until Jan. 16.