Husky sees MEG as potential 'hand-in-glove' Canada oil sands merger


WINNIPEG, Manitoba (Reuters) - Husky Energy Inc's (HSE.TO) hostile bid for MEG Energy Corp (MEG.TO) reflects the need for Canadian oil companies to own integrated assets, from production to refineries, to manage the deep price discounts on Canadian crude, Husky's chief executive said on Monday.

MEG shareholders will have the option to receive C$11 in cash or 0.485 of a Husky share for every share held, in a proposal that represents a 37 percent premium to MEG's closing price on Friday.

Suncor has no offer on the table for MEG but it considers all opportunities, spokeswoman Sneh Seetal said. The company would also reduce duplication at corporate head office in Calgary, but Mr. Peabody said he expects that in the medium term, the combined operations would require more people because of growth.

John Rogers, a spokesman for Calgary-based MEG, confirmed that the company has received the unsolicited offer and said management and the board would review it to determine whether it's in shareholders' best interest.

Shares in MEG soared in early trading on the Toronto Stock Exchange on Monday to as high as $11.70, surpassing Husky's $11 per share cash-or-shares bid, before falling back to hover near the bid level. Including debt, the deal has an enterprise value of $6.4 billion. Peabody downplayed any outside influence on the proposal.

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"This is driven, frankly, by me", Peabody said. "I see tremendous benefits for both companies".

Husky values the transaction at $6.4 billion, including the assumption of $3.1 billion in debt, and says the proposal will be open for acceptance by MEG shareholders until January 16.

The takeover would create an oil producer churning out more than 410,000 barrels of oil equivalent a day and with an nearly equal amount of refining capacity. MEG's stock is the third-best performer in the 48-company S&P/TSX Energy Index this year, benefiting from rising prices for heavy oil, even after an nearly 30 per cent slide since closing at $11.30 on July 10. In July, Highfields Capital Management managing director Daniel Farb, whose firm owns 9.9 per cent of MEG's shares, resigned from MEG's board, saying he was concerned about the direction of the company. Peabody declined to say whether he's discussed the deal with Highfields but that he expects the firm to be pleased with the offer.

The deal would also include Husky assuming $3.1 billion of MEG's debt. Numerous savings from the deal would come from Husky being able to refinance MEG's debt at lower rates.

Goldman Sachs Canada Inc is acting as financial adviser and Osler, Hoskin & Harcourt LLP is acting as lead legal adviser to Husky.