By: Jon Costello
Note: Dollar references are to Canadian dollars unless otherwise specified.
We don’t believe either Strathcona Resources’ (SCR:CA) actual bid or Cenovus Energy’s (CVE:CA) rumored bid for MEG Energy (MEG:CA) is likely to succeed.
Our position is straightforward: MEG’s proved reserve net asset value discounted at 10% (NPV-10) is approximately $36.40 per MEG share. We do not expect the company to consider a bid below this value, nor do we anticipate a bidder to offer a premium over this in the current market environment.
From the bidders’ perspective, neither company currently in the running to make a bid can afford an offer that reflects MEG’s NPV-10.
MEG’s board of directors owes a fiduciary duty to serve the interests of the company’s shareholders. Its board is likely to turn down any bid that falls short of a material premium to NPV-10.