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is now the time to invest in oil stocks?

  • Last Updated:
  • Jan 23rd, 2019 12:59 am
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Deal Addict
Aug 17, 2008
1777 posts
927 upvotes
MEG Energy

Husky Is Likely to Win Support to Extend MEG Bid Deadline
https://www.bloomberg.com/news/articles ... on-meg-bid

"Husky Energy Inc. is expected to win support to extend a deadline to persuade shareholders to back its hostile bid for rival oil-sands producer MEG Energy Corp., despite falling short of winning outright support for the offer, according to people familiar with the matter."

Original PR - https://huskyenergy.com/news/release.as ... id=1587403


Update: Just trying to see what the implied value is to a MEG shareholder today were this takeover to go through. If someone cares to check my math and logic, I'd appreciate it.

Assumption is that all the shareholders elect for the all cash offer aka "Cash Consideration" with the balance "subject to pro-ration."

Inputs

All Cash offer = $11.00
MEG Shares Outstanding (via TMX) = 296,841,071
MEG/HSE Share Exchange Ratio = 0.485
MEG COB = $8.54
HSE COB = $15.53

"Maximum Cash Consideration" = $1,000,000 (CAD assumed, but not stated in the circular.)
MEG value based on $11/sh and shares outstanding = $11.00 x 296,841,071 = $3,265,251,781.00

Calculations

Maximum cash payout ratio per share based on the assumption = $1B/$3.265B = 0.3063
Balance to be paid out in HSE shares = 1-0.306 = 0.6937

1 share of MEG into HSE

Cash value per share = 0.3063 x $11 = $3.369
Share value in HSE = 0.6937 x 0.485x$15.53 = $5.225

=> Today's COB inferred takeover value of 1 MEG share = $3.369+$5.225 ~ $8.594
Deal Addict
Aug 17, 2008
1777 posts
927 upvotes
Husky gives up the chase for MEG sighting 2 main reasons.

• The Government of Alberta departed from free market principles, introducing uncertainty through the imposition of government-mandated production cuts

• Continued lack of meaningful progress on Canadian oil export pipeline developments

https://huskyenergy.com/news/release.as ... id=1701134
Deal Expert
User avatar
Sep 19, 2004
21988 posts
4036 upvotes
Waterloo
Jokes, MEG bid/ask is around $5.3, holy moly
-40% now, to March 2018 low, it wasn't even that low before the bid
Shows that "Reuters news yesterday that they've secured +50% vote" is fake, LOL

Wished I sold all at $11, now it's too late, FML, just never any luck with M&A
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Deal Addict
Aug 17, 2008
1777 posts
927 upvotes
MEG - "Eve of Destruction" song came into my head.
Smiling Face With Horns
Deal Addict
User avatar
Apr 23, 2006
2483 posts
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Toronto
Bought into MEG. I think it’s way oversold. If Husky was willing to pay $11, it should be worth more than $5.
Deal Expert
User avatar
Sep 19, 2004
21988 posts
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Waterloo
meanwhile, WCS is closing the gap with WTI
MEG CEO/Board better hope they can do better, to justify them rejecting Husky's offer
Canadian crude surges to trade at smallest discount to U.S. in a decade

Canadian crude prices have rallied to trade at the smallest discount to U.S. oil in a decade, as Western Canadian Select has surged 40% since early December, when the Alberta's provincial government forced producers to cut output by nearly 9% in a bid to boost depressed prices.
The government directed the cuts after Canadian crude prices traded at a steep discount to U.S. oil, reaching a record difference of more than $51/bbl in October, but the gap has narrowed to less than $7/bbl, the lowest since March 2009, according to RBC Capital.
Infrastructure bottlenecks in Canada pushed crude inventories sharply higher last year on a lack of pipeline space needed to carry oil from landlocked Alberta to U.S. refineries, which left shippers with few options to sell their crude and weighing on regional prices.
While prices have rebounded, the industry faces the issue of losing money on each barrel of crude they send south; shipping oil from terminals in Alberta to the U.S. Gulf Coast costs $9-$12/bbl by pipeline and $18-$20/bbl by rail, exceeding the current premium of U.S. crude to Canadian and putting shippers at risk of missing out on profits.
Relevant tickers include SU, IMO, CVE, CNQ, ENB, ECA, TRP, CPG, BTE, ERF, OTCPK:HUSKF, OTCQX:PGHEF, OTCPK:MEGEF, OTCPK:ATHOF, OTCPK:SPGYF
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Deal Fanatic
Feb 15, 2006
7615 posts
2022 upvotes
Toronto
Yap, instead of selling at $11, the MEG board finds themselves at just over $5.

They can certainly justify their decision. They get to keep their job to keep their fat wallet and rich bonuses.
Deal Fanatic
Jan 27, 2006
9592 posts
3551 upvotes
Vancouver, BC
MrMom wrote:
Jan 17th, 2019 7:28 am
Husky gives up the chase for MEG sighting 2 main reasons.

• The Government of Alberta departed from free market principles, introducing uncertainty through the imposition of government-mandated production cuts

• Continued lack of meaningful progress on Canadian oil export pipeline developments

https://huskyenergy.com/news/release.as ... id=1701134
The Husky spin-doctors at work. According to BNNBloomberg, the Husky bid simply failed to get enough support for their bid from shareholders. After all, these things were known for sometime and if they were actually valid issues pertaining to this bid, Husky would have pulled the bid weeks ago.
Deal Fanatic
Jan 27, 2006
9592 posts
3551 upvotes
Vancouver, BC
ak-47 wrote:
Jan 17th, 2019 10:37 am
Bought into MEG. I think it’s way oversold. If Husky was willing to pay $11, it should be worth more than $5.
You are probably right especially if you consider that the current WCS spread is as low as it's been for a while. The current MEG price implies that investors don't believe that the WCS spread will hold...
Deal Fanatic
Feb 15, 2006
7615 posts
2022 upvotes
Toronto
Decided to buy into MEG at $5.31 and $5.32, as it is oversold at this price.

Was thinking to buy more, then saw it all of a sudden jumped to $5.50 at close.

Wonder why not enough shareholders of MEG want to sell at $11.
Deal Fanatic
Jan 27, 2006
9592 posts
3551 upvotes
Vancouver, BC
Arrgh wrote:
Jan 17th, 2019 4:19 pm
Decided to buy into MEG at $5.31 and $5.32, as it is oversold at this price.

Was thinking to buy more, then saw it all of a sudden jumped to $5.50 at close.

Wonder why not enough shareholders of MEG want to sell at $11.
But it wasn't really $11... it was a stock and cash deal so as the price of Husky dropped, the offer price dropped as well.

Now if you combine that with the idea that WCS is much higher than when the offer was made AND you believe that WCS spread will stay fairly attractive at this point, then you can see why shareholders weren't happy. The only problem is that the higher WCS pricing has been reflected in any oil producer's price up to this point.

As for the current share price, contrast the performance with another leveraged heavy play like ATH and you'll see that the compared to the early 2018 Summer price, the mid to lower $5s is correct in pricing as ATH has also suffered approx a 50% drop in price from that time period,
Deal Fanatic
Jan 27, 2006
9592 posts
3551 upvotes
Vancouver, BC
MrMom wrote:
Jan 18th, 2019 4:33 pm
HSE gave MEG the middle digit after their bid failed.

https://www.bloomberg.com/news/articles ... oil-output?

"<MEG spokeswoman> Hjulfors confirmed that MEG reached out to engage with Husky after its bid was made public, but Husky didn’t respond to that offer."
A lot of analysts did say at the time the bid was made public that Husky was been very opportunistic and from the sounds of the report, they were right on the money as Huskey was fishing to see how desperate MEG was.
Jr. Member
Jun 28, 2018
114 posts
43 upvotes
Toronto
Interesting this Bloomberg article has a different MEG spokesperson Hjulfors. Another article "exclusive Reuters" had their Investor Relations VP speak saying the MEG CEO reached out this month January 2019 (Bid expired Jan 16, 2019) to Husky for a friendly takeover bid, but Husky never responded back.

I wonder how many retail shareholders are ticked off that they lost out when the shares dropped even lower when HSE "unexpectedly" did not increase their bid. I don't think MEG'll stay low though, probably just those who bought hoping for an acquisition dumping their positions.

I also wonder if the Husky announced divestitures "unrelated" to the MEG acquisition attempt will still go through.

Still holding HSE at -37.77%
MrMom wrote:
Jan 18th, 2019 4:33 pm
HSE gave MEG the middle digit after their bid failed.

https://www.bloomberg.com/news/articles ... oil-output?

"<MEG spokeswoman> Hjulfors confirmed that MEG reached out to engage with Husky after its bid was made public, but Husky didn’t respond to that offer."
The Distracted Investor

Dividends through quality companies 😃 Though I usually lose money with trades :facepalm:
Deal Fanatic
Jan 27, 2006
9592 posts
3551 upvotes
Vancouver, BC
johnnychi wrote:
Jan 19th, 2019 5:11 pm
Interesting this Bloomberg article has a different MEG spokesperson Hjulfors. Another article "exclusive Reuters" had their Investor Relations VP speak saying the MEG CEO reached out this month January 2019 (Bid expired Jan 16, 2019) to Husky for a friendly takeover bid, but Husky never responded back.

I wonder how many retail shareholders are ticked off that they lost out when the shares dropped even lower when HSE "unexpectedly" did not increase their bid. I don't think MEG'll stay low though, probably just those who bought hoping for an acquisition dumping their positions.

I also wonder if the Husky announced divestitures "unrelated" to the MEG acquisition attempt will still go through.

Still holding HSE at -37.77%
When a takeover offer is on the table, most investors get a little greedy and wait for other offers so that they can 'make a bit more' for free... Unfortunately, sometimes, what we saw with this Husky offer happens - the stock price actually drops the longer the offer is on the table as the buyer's stock price drops as it was mainly a stock based deal (ie could have sold on the market North of $11 when the offer was announced but the price trended downward until the mid 8's) - or the offer gets pulled and the price drops like a rock. In my experience, the best return on a takeover off is right after the offer is made public... sure you can wait to capture the last 5% but you risk things like this happening.

I don't feel for those who were betting on a better offer as they were just being greedy at the end of the day.

As for MEG's price going forward, in theory, all of the heavy oil stocks should be going up with the recent increases in WCS but they haven't responded so it's going to take something more for prices to start moving.

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