Strathcona Resources Ltd. Announces Intention to Commence Take-Over Bid to Acquire MEG Energy Corp.

2025-05-16

TSX - Toronto Stock Exchange · Oil · Bitumen · Natural Gas · Natural Gas Liquids · Canada

Canada NewsWire

CALGARY, AB , May 15, 2025 /CNW/ - Strathcona Resources Ltd. (" Strathcona ") announced today that it intends to commence a take-over bid for MEG Energy Corp. (TSX: MEG) (" MEG "), pursuant to which Strathcona will offer (the " Offer ") to acquire all of the issued and outstanding common shares of MEG (" MEG Shares "), not already owned by Strathcona or its affiliates, for 0.62 of a common share of Strathcona (" Strathcona Shares ") and $4 .10 in cash per MEG Share. Based on the closing share price of the Strathcona Shares on the Toronto Stock Exchange (the " TSX ") on May 15, 2025 , the Offer represents total consideration of $23.27 per MEG Share (82.4% Strathcona Shares and 17.6% cash), reflecting a 9.3% premium based on the closing price of the MEG Shares on the TSX on May 15, 2025 .

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The Offer will not be subject to any financing condition, with the cash consideration payable under the Offer expected to be funded pursuant to a bridge financing commitment from a syndicate of lenders (the "Bridge Financing Commitment "), subject to the terms and conditions of such financing. At the time the Offer is commenced, Waterous Energy Fund (" WEF "), currently the holder of 79.6% of the Strathcona Shares, intends to, through Waterous Energy Fund III (" WEF III "), commit to further increase its investment in Strathcona and subscribe for an additional 21.4 million Strathcona Shares through the use of subscription receipts.

Upon completion of the Offer, Strathcona expects to have approximately 379 million Strathcona Shares outstanding and approximately $1.5 billion in net debt 1 . The combined business is expected to be owned approximately 56.5% by existing holders of Strathcona Shares (" Strathcona Shareholders "), approximately 37.8% by existing holders of MEG Shares (" MEG Shareholders ") and approximately 5.6% by WEF III. WEF is expected to hold a combined approximately 51% ownership position, inclusive of its existing Strathcona Shares and those expected to be issued to WEF III pursuant to the WEF III Equity Investment (as defined below).

| _ | | 1 A non-GAAP financial measure which does not have a standardized meaning prescribed by the IFRS® Accounting Standards (the " Accounting Standards "). See the " _Non-GAAP Financial Measures and Ratios _" section of this news release. |

Strategic Rationale for the Offer

Complementary, High-Quality Assets of Scale : The combination of Strathcona and MEG would unify two 100+ Mbbls/d heavy oil "pure plays" with near identical netbacks and reserve life indexes, both focused on SAGD oil sands development. The combination would create Canada's fifth largest oil producer and fourth largest SAGD producer, with among the largest proved oil reserves in North America . The combined business is expected to possess the scale and balance sheet metrics required to achieve an investment grade credit rating. Significant Accretion for Both MEG and Strathcona Shareholders : The combination of Strathcona and MEG is expected to provide significant accretion per share to both MEG Shareholders and Strathcona Shareholders on key metrics, including funds flow per share, funds flow less sustaining capital expenditures per share, net asset value per share and production per share, while being leverage neutral to current MEG Shareholders. Meaningful and Achievable Synergies : Strathcona has identified $175 million in annual synergy opportunities, including $50 million in overhead reduction opportunities, $25 million in interest savings opportunities and $100 million in operating synergy opportunities ( $75 million in capital expenditures and $25 million in operating costs). The PV-10 of the aggregate operating synergy opportunities is estimated at greater than $2.50 /Strathcona Share, based on proved (1P) and proved plus probable (2P) reserves.

MEG Shareholders and Strathcona Shareholders are encouraged to review a presentation describing the benefits of the Offer, which has been posted on Strathcona's website at www.strathconaresources.com/investors/#presentations.

Background to the Offer

During the first and second quarters of 2025, Strathcona acquired approximately 23.4 million MEG Shares through open market purchases, representing approximately 9.20% of the issued and outstanding MEG Shares as of May 5, 2025 or approximately 9.98% assuming completion in full of MEG's current normal course issuer bid.

On April 28, 2025 , Strathcona made a formal written combination proposal to the board of directors of MEG (the " MEG Board "), with the same consideration as the Offer. On May 13, 2025 , the chairman of the MEG Board responded and indicated that the MEG Board was not interested in pursuing a combination with Strathcona .

Strathcona respects the MEG Board's right to dismiss any offer made for MEG, and it has no reason to believe that its decision to dismiss Strathcona's proposal was not made in good faith based on its view of what is best for MEG Shareholders. However, Strathcona believes the benefits of a combination of Strathcona and MEG are significant enough that MEG Shareholders should have the opportunity to decide for themselves.

Strathcona expects to file the formal offer to purchase and take‐over bid circular for the Offer in the next two weeks.

Strathcona remains ready and willing to engage with the MEG Board regarding a strategic combination. To the extent the MEG Board determines it to be prudent, as the second largest MEG Shareholder, Strathcona would also support a strategic alternatives process for MEG to determine if a superior transaction is available. Strathcona would be willing to participate constructively and in good faith in such a process, including signing a mutual confidentiality agreement to share non-public information, provided it is not required to sign a standstill agreement.

Approvals

The Offer has been unanimously approved by the Board of Directors of Strathcona .

Offer Details

Full details of the Offer will be included in the formal offer to purchase and take‐over bid circular, which will be filed with the applicable Canadian securities regulatory authorities and available under MEG's profile on SEDAR+ at www.sedarplus.ca . Strathcona will request a list of securityholders from MEG at the commencement of the Offer and expects to mail the formal offer to purchase and take‐over bid circular to MEG Shareholders as soon as practicable, and in any event within two business days, after receipt of such list. In connection with the Offer, Strathcona expects to file relevant materials with the U.S. Securities and Exchange Commission (the " SEC "), including a registration statement on Form F-10 (a " Registration Statement ") under the United States Securities Act of 1933 , as amended (the " U.S. Securities Act "), which will include the formal offer to purchase and take‐over bid circular and other documents related to the Offer.

The Offer will be open for acceptance for at least 105 days following the commencement of the Offer, unless the Offer is extended, accelerated or withdrawn by Strathcona in accordance with its terms and applicable law. The Offer is intended to constitute a "Permitted Bid" for purposes of MEG's shareholder rights plan (the " Shareholder Rights Plan "), which was most recently approved by MEG Shareholders on May 1, 2023 .

The Offer is expected to be subject to the satisfaction or, where permitted, waiver of certain conditions, including, without limitation: (a) there having been validly deposited under the Offer and not withdrawn more than 50% of the outstanding MEG Shares (and associated rights under the Shareholder Rights Plan), excluding any MEG Shares beneficially owned, or over which control or direction is exercised, by Strathcona or by any person acting jointly or in concert with Strathcona , which condition cannot be waived by Strathcona ; (b) there having been validly deposited under the Offer and not withdrawn MEG Shares (and associated rights under the Shareholder Rights Plan) which represent, together with the MEG Shares held by Strathcona , at least 66⅔% of the outstanding MEG Shares (on a fully-diluted basis); (c) no material adverse change having occurred in respect of the business, affairs, assets, operations or prospects of MEG; (d) all required governmental, regulatory and stock exchange approvals, or expiry, waiver or termination of any waiting or suspension period imposed, with respect to the Offer, including, without limitation, pursuant to the _Competition Act _( Canada ) and the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 , as amended, and the approval of the TSX with respect to the issuance and listing of the Strathcona Shares issuable pursuant to the Offer, having been obtained; (e) the Registration Statement having become effective under the U.S. Securities Act and not becoming subject to a stop order or a proceeding seeking a stop order; (f) MEG not having taken certain actions that could reasonably be expected to reduce the anticipated economic value to Strathcona of the Offer or impair the ability of Strathcona to proceed with the Offer; (g) Strathcona having obtained the requisite approval of the Strathcona Shareholders with respect to the issuance of the Strathcona Shares under the Offer pursuant to the rules of the TSX; and (h) other customary conditions. The Offer will not be subject to any due diligence or financing conditions, including in respect of the Bridge Financing Commitment or the WEF III Equity Investment.

Subject to TSX approval, Strathcona expects to obtain the requisite approval of Strathcona Shareholders with respect to the issuance of Strathcona Shares pursuant to the Offer by delivery of a written consent of WEF, which holds approximately 79.6% of the issued and outstanding Strathcona Shares as of the date hereof.

If the conditions of the Offer are satisfied or, where permitted, waived at the expiry time of the Offer and Strathcona takes up and pays for the MEG Shares validly deposited under the Offer, Strathcona intends to acquire any MEG Shares not deposited under the Offer through a compulsory acquisition pursuant to the _Business Corporations Act _( Alberta ), if available, or to propose an amalgamation, statutory arrangement or other transaction for the purpose of MEG becoming, directly or indirectly, a wholly-owned subsidiary or affiliate of Strathcona , in each case for consideration per Common Share at least equal in value to and in the same form as the consideration paid by Strathcona per Common Share under the Offer. The exact timing and details of any such transaction will depend upon a number of factors, including, without limitation, the number of MEG Shares acquired pursuant to the Offer.

This news release is not a substitute for the Registration Statement, the formal offer to purchase and take-over bid circular or any other relevant documents filed with the applicable Canadian securities regulatory authorities or the SEC. MEG Shareholders and other interested parties are urged to read the Registration Statement, the formal offer to purchase and take-over bid circular, all documents incorporated by reference therein, all other applicable documents and any amendments or supplements to any such documents when they become available, because they will contain important information about Strathcona , MEG and the Offer . When they become available, the Registration Statement, formal offer to purchase and take-over bid circular and other materials filed by Strathcona with the SEC will be available electronically without charge at the SEC's website at www.sec.gov . When available, the Registration Statement, formal offer to purchase and take-over bid circular, documents incorporated by reference therein and other relevant documents may also be obtained on request without charge from Strathcona by email at info@strathconaresources.com or by phone at (403) 930-3000 or Laurel Hill Advisory Group, the information agent for the Offer, by email at assistance@laurelhill.com or by phone at 1-877-452-7184 (Toll-Free), and will also be available electronically at www.sedarplus.ca

Readers are cautioned that Strathcona may determine, in its sole discretion, not to make the Offer if: (a) MEG implements or attempts to implement defensive tactics in relation to the Offer; (b) Strathcona discovers or otherwise identifies information suggesting that the business, affairs, assets, operations or prospects of MEG have been impaired or discovers or otherwise identifies other undisclosed material adverse information concerning MEG; (c) MEG determines to engage with Strathcona to negotiate the terms of a combination transaction and MEG and Strathcona determine to undertake that transaction utilizing a structure other than a take-over bid, such as an arrangement; or (d) a material adverse change has occurred in the business, affairs, assets, operations or prospects of MEG prior to commencement of the Offer. Accordingly, there can be no assurance that the Offer will be made or that the final terms of the Offer will be as set out in this news release.

WEF III Equity Investment Details

In connection with the Offer being formally made, WEF III intends to subscribe for and commit to purchase 21.4 million subscription receipts of Strathcona (" Strathcona Subscription Receipts ") representing approximately, but not equal to or greater than, 10% of the Strathcona Shares issued and outstanding immediately prior to the commencement of the Offer (the " WEF III Equity Investment ").

The subscription price of the Strathcona Subscription Receipts and other terms and conditions of the WEF III Equity Investment will be determined prior to commencement of the Offer in accordance with the rules of the TSX, through negotiations between WEF III and a special committee comprised of independent directors of Strathcona (the " Special Committee ") that has been established in connection with the WEF III Equity Investment. Strathcona expects that the subscription price for the Strathcona Subscription Receipts under the WEF III Equity Investment will be determined in accordance with the rules of the TSX with reference to the five-day volume weighted average price of the Strathcona Shares on the TSX prior to the date of commencement of the Offer.

Each Strathcona Subscription Receipt is expected to entitle WEF III to receive, automatically upon the take-up of MEG Shares deposited under the initial deposit period for the Offer, one Strathcona Share.

The proceeds of the WEF III Equity Investment will be held in escrow by a subscription receipt agent and released to, or at the direction of, Strathcona concurrently upon Strathcona taking up MEG Shares at the expiration of the initial deposit period for the Offer, and will be used by Strathcona to reduce a portion of the amount committed under the Bridge Financing Commitment. In the event that Strathcona withdraws or terminates the Offer and has not entered into a definitive agreement to acquire MEG, the proceeds of the WEF III Equity Investment will be returned to WEF III.

The completion of the WEF III Equity Investment will be subject to the satisfaction or waiver of certain customary conditions to be negotiated by the Special Committee and WEF III and is expected to be completed no later than 45 days from the commencement of the Offer. The Offer will not be conditional on the closing of the WEF III Equity Investment.

Advisors

Scotiabank and TD Securities are acting as exclusive financial advisors to Strathcona in connection with the Offer. Blake, Cassels & Graydon LLP and Skadden, Arps, Slate, Meagher & Flom LLP are acting as legal counsel to Strathcona in connection with the Offer. The Special Committee has engaged Torys LLP to act as its legal counsel in connection with the WEF III Equity Investment.

Strathcona has also engaged Laurel Hill Advisory Group to act as strategic communications advisor and information agent in connection with the Offer. MEG Shareholders may contact Laurel Hill Advisory Group by email at assistance@laurelhill.com or by phone at 1-877-452-7184 (Toll-Free).

About Strathcona

Strathcona is one of North America's fastest growing oil producers with operations focused on thermal oil and enhanced oil recovery. Strathcona is built on an innovative approach to growth achieved through the consolidation and development of long-life oil and gas assets. The Strathcona Shares are listed on the Toronto Stock Exchange (TSX: SCR).

Website addresses are provided for informational purposes only and no information contained on, or accessible from, such websites is incorporated by reference in this news release unless expressly incorporated by reference.

No Offer or Solicitation

This news release is for informational purposes only and does not constitute an offer to buy or sell, or a solicitation of an offer to sell or buy, any securities. The Offer to acquire MEG Shares and issue Strathcona Shares in connection therewith will be made solely by, and subject to the terms and conditions set out in, the formal offer to purchase and take-over bid circular and accompanying letter of transmittal and notice of guaranteed delivery. The formal offer to purchase and take-over bid circular will contain important information about the Offer and should be read in its entirety by MEG Shareholders.

Cautionary Statement Respecting Information of MEG

Strathcona has not had access to the non-public books and records of MEG and Strathcona is not in a position to independently assess or verify certain of the information in MEG's publicly filed documents, including its financial statements and reserves disclosures. MEG has not reviewed this news release and has not confirmed the accuracy and completeness of the information in respect of MEG contained herein. As a result, all information regarding MEG included herein has been taken from, or is based upon, publicly available information filed by MEG with the applicable securities regulatory authorities in Canada prior to the date hereof and other public sources. While Strathcona has no reason to believe that such publicly available information is inaccurate or incomplete, or contains any untrue statement of a material fact or omits to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made, Strathcona does not assume any responsibility for the accuracy or completeness of any such information or for any failure by MEG to disclose events or facts which may have occurred or which may affect the significance or accuracy of any such information but which are unknown to Strathcona .

Production and Reserves Information

MEG's oil and gas reserves and Strathcona's oil and gas reserves estimates have been prepared in accordance with National Instrument 51‑101 – _Standards for Disclosure for Oil and Gas Activities _("NI 51-101"), which prescribes oil and gas disclosure standards for Canadian public issuers engaged in oil and gas activities that differ from the oil and gas disclosure standards of the SEC under Subpart 1200 of Regulation S-K. NI 51-101 permits oil and gas issuers, in their filings with the applicable securities regulatory authorities in Canada , to disclose proved, probable and possible reserves, and to disclose reserves and production on a gross basis before deducting royalties. The SEC definitions of proved and probable reserves are different than the definitions contained in NI 51‑101. Therefore, MEG's and Strathcona's proved and probable reserves may not be comparable to those disclosed by U.S. companies in reports filed with the SEC. Moreover, as permitted by NI 51‑101, Strathcona has determined and disclosed its reserves and the related net present value of future net revenue from its reserves in its NI 51‑101 compliant reserves disclosure using forecast prices and costs. In contrast, the SEC requires that reserves and related future net revenue be estimated based on historical 12‑month average prices rather than forecast prices, but permits the optional disclosure of revenue estimates based on different price and cost criteria, including standardized future prices or management's own forecasts. Consequently, the oil and gas reserves estimates of MEG and Strathcona that are prepared in accordance with NI 51‑101 are not comparable to oil and gas reserve estimates provided by U.S. companies in their filings with the SEC.