Cenovus to buy Husky for $2.9 billion
Cenovus Energy Inc CVE.TO has agreed to buy rival Husky Energy Inc HSE.TO in an all-stock deal valued at C$3.8 billion ($2.9 billion) to create Canada's No. 3 oil and gas producer as a pandemic-driven demand collapse and weak oil prices force the industry to consolidate.
The deal, announced on Sunday, follows recent big deals in
the United States. Concho Resources Inc CXO.N agreed this month to being taken
over by ConocoPhillips COP.N for $9.7 billion. That followed Chevron Corp's
CVX.N $4.2 billion purchase of Noble Energy.
Canadian companies have been under stress for six years,
dating back to the last downturn, due to congested pipelines and the flight by
foreign oil companies and investors due to Canada’s high production costs and
emissions.
Consolidation makes the Canadian industry leaner and lowers
costs, said Jackie Forrest, executive director at the ARC Energy Research
Institute, adding that deal-making is likely just getting started.
The deal makes Cenovus an integrated producer with
refineries in Canada and the United States, adding to their existing
half-ownerships in two U.S. refineries.
Refineries have suffered during the pandemic as travel
restrictions hammered demand for jet fuel and gasoline, but in more normal
times they can provide a hedge for oil producers when crude prices are low.
“The diverse portfolio will enable us to deliver stable cash
flow through price cycles,” Alex Pourbaix, Cenovus President and Chief
Executive Officer said.
HONG KONG TYCOON
After the deal closes, Cenovus shareholders would own 61% of
the combined entity, with Husky shareholders controlling the rest. Hong Kong
tycoon Li Ka-shing-controlled Hutchison Whampoa would hold a 15.7% stake in the
new company. Hutchison Whampoa is the biggest shareholder of Husky currently,
with a 40.2% stake.
Cenovus’ deal for Husky is valued at C$23.6 billion,
including debt, the companies said in a joint statement.
The deal is the biggest oil and gas industry M&A in
nearly four years, based on enterprise value, said Tom Pavic, president of
Sayer Energy Advisors, which advises on M&A. The most recent larger deals
happened in the first quarter of 2017, when Cenovus bought ConocoPhillips COP.N
assets and Canadian Natural purchased assets from Shell RDSa.L and Marathon Oil
MRO.N.
Cenovus said the deal would create Canada's third-largest
producer based on total company output behind Canadian Natural Resources Ltd
CNQ.TO and Suncor Energy Ltd SU.TO.
Husky shareholders will receive 0.7845 of a Cenovus share
and 0.0651 of a Cenovus share purchase warrant in exchange for each Husky
common share, according to the statement. Husky’s market value stood at C$3.2
billion as of Friday’s close, which implies Cenovus is offering a 19.5% premium
through the all-stock deal.
Cenovus and Husky shares have lost 63% and 70% respectively
this year, exceeding the Toronto energy index .SPTTEN loss of 53%.
The combined company is expected to generate annual
synergies of C$1.2 billion and will operate as Cenovus Energy Inc with
headquarters in Alberta, Canada, the statement said.
Cenovus CEO Pourbaix will serve as chief executive of the
merged company with Jeff Hart, currently Husky’s finance chief, becoming chief
financial officer.
Cenovus said the combined company will be able to produce
750,000 barrels of oil equivalent per day (BOE/d).
The transaction has been unanimously approved by the boards
of directors of Cenovus and Husky and is expected to close in the first quarter
of 2021, the companies said.
RBC Capital Markets and TD Securities are acting as
financial advisors to Cenovus, while Goldman Sachs Canada and CIBC Capital
Markets are acting as financial advisors to Husky.
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