Canadian oil and gas producer Husky Energy Inc said on Sunday it has offered to acquire rival MEG Energy Corp in a deal valued at C$6.4 billion (USD $5 billion) including debt.
The combined company will have total production of more than 410,000 barrels of oil equivalent per day (boepd) and refining and upgrading capacity of about 400,000 barrels per day (bpd), Husky said.
The offer comes as many Canadian oil producers have struggled with transportation bottlenecks as output has surged, pushing Canadian heavy crude to near-historic discounts to U.S. light crude.
“In a time of increased market uncertainty, Husky believes the combined company will have an improved opportunity to accelerate new projects in Canada compared to two separate entities,” Husky said in a statement.
MEG was not immediately available for comment.
Under the terms of the proposal, each MEG shareholder will have the option to choose to receive consideration of C$11 in cash or 0.485 of a Husky share, for every share held.
That offer is subject to a maximum aggregate cash consideration of C$1 billion and a maximum aggregate number of Husky shares issued of about 107 million.
“The MEG Board of Directors has refused to engage in a discussion on the merits of a transaction, giving us no option but to bring this offer directly to MEG shareholders,” Chief Executive Rob Peabody said.
Husky’s offer delivers a 44 percent premium to the 10-day volume-weighted average MEG share price of C$7.62 as of Friday, and a 37 percent premium to MEG’s Friday close of C$8.03.
Earlier this year, MEG agreed to sell some pipeline and storage assets in Alberta to Wolf Midstream Inc for C$1.61 billion ($1.28 billion) to pay down debt and fund its flagship project in Athabasca.
Goldman Sachs Canada Inc is acting as financial adviser and Osler, Hoskin & Harcourt LLP is acting as lead legal adviser to Husky.
The proposal, which has been unanimously approved by Husky’s board of directors, is expected to result in C$200 million per year in near-term, realizable synergies.