Corporate M&A

Cenovus and Husky Energy Announce Mega Merger

By Isha Makkar
October 25, 2020
2 minutes read
Oil Derrick

TSX-listed Cenovus Energy Inc. and Husky Energy Inc. have entered into an agreement to merge, in an all-stock transaction valued at C$23.6 billion on an enterprise value basis. The merger will create the third largest Canadian oil and natural gas producer with an advantaged upstream and downstream portfolio.

The transaction follows a string of major pandemic-driven consolidations in the upstream oil & gas sector over the past few weeks, the most of which include ConocoPhillips US$13.3 billion acquisition of Concho Resources Inc., and Pioneer Natural Resources Co.’s purchase of Parsley Energy Inc. for US$7.6 billion, both announced last week.

Under the terms of agreement, Husky shareholders will receive 0.7845 Cenovus shares plus 0.0651 of a Cenovus share purchase warrant for each share of Husky common stock owned. Based on the exchange ratio and the companies’ closing share prices on October 23rd 2020, (the last trading day prior to the transaction announcement), the total combined market capitalization (equity value) amounts to approximately C$9.8 billion.

The merged company will operate under the name ‘Cenovus Energy Inc.’ and will be headquartered in Calgary. It will also be the second largest Canada-based refiner and upgrader, with a total North American upgrading and refining capacity of approximately 660,000 barrels per day (bbls/d), which includes approximately 350,000 bbls/d of heavy oil conversion capacity. Pro-forma proved (1P) reserves for the combined entity amount to approximately 6.5 billion barrels of oil equivalent (Bboe) as of December 31st, 2019, with combined average daily production of approximately 750 thousand barrels of oil equivalent per day (Mboe/d) for the year-to-date.

Upon completion, Cenovus shareholders will own approximately 61% of the combined entity, and Husky shareholders will own the remaining 39%. Hutchison Whampoa Europe Investments SARL and LF Investments SARL currently own 41.19 % and 29.32% stake respectively in Husky.

“The diverse portfolio will enable us to deliver stable cash flow through price cycles, while focusing capital on the highest-return assets and opportunities. The combined company will also have an efficient cost structure and ample liquidity. All of this supports strong credit metrics, accelerated deleveraging and an enhanced ability for return of capital to shareholders,” said Alex Pourbaix, Cenovus’ President & CEO, who will also serve as CEO of the combined entity.

The transaction has been unanimously approved by the boards of directors of both companies, but remains subject to customary closing conditions including receipt of approval of the Court of Queen’s Bench of Alberta, approval by at least two-thirds of Husky common stock shareholders, and approval by majority Cenovus common stock shareholders. The deal is expected to close in Q1-2021.

RBC and TD Securities are acting as financial advisors to Cenovus, while Goldman Sachs and CIBC are advising Husky.

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