Cenovus to buy Husky for $2.9 billion to create No.3 Canadian energy firm; more deals seen

In this news, we discuss the Cenovus to buy Husky for $2.9 billion to create No.3 Canadian energy firm; more deals seen.

(Reuters) – Cenovus Energy Inc. CVE.TO has agreed to buy rival Husky Energy Inc. HSE.TO in an all-equity transaction valued at C $ 3.8 billion (C $ 2.9 billion dollars) to create Canada’s third largest producer of oil and gas as a pandemic – collapsing demand and low oil prices are forcing the industry to consolidate.

The deal, announced on Sunday, is the largest in Canada’s energy sector since the start of the pandemic and follows recent major deals in the United States.

Concho Resources Inc CXO.N agreed this month to be taken over by ConocoPhillips COP.N for $ 9.7 billion. This follows the CVX.N $ 4.2 billion purchase of Chevron Corp from Noble Energy.

Canadian companies have been under pressure for six years, since the last downturn, due to pipeline congestion and the leakage of foreign oil companies and investors due to Canada’s high production costs and emissions.

Consolidation is making Canadian industry leaner and lowering costs, said Jackie Forrest, executive director of the ARC Energy Research Institute, adding that closing deals is likely just beginning.

The deal makes Cenovus an integrated producer with refineries in Canada and the United States, in addition to their existing half-interests in two US refineries.

Refineries have suffered during the pandemic as travel restrictions hammered demand for jet fuel and gasoline, but under normal circumstances they can provide cover for oil producers when crude prices are low.

“The diversified portfolio will allow us to provide stable cash flow throughout price cycles…” said Alex Pourbaix, President and CEO of Cenovus.

TYCOON OF HONG KONG

Once the transaction is completed, Cenovus shareholders would own 61% of the combined entity, with Husky shareholders controlling the remainder. Hong Kong mogul Li Ka-shing, controlled by Hutchison Whampoa, is said to have a 15.7% stake in the new company. Hutchison Whampoa is currently the largest shareholder in Husky, with a 40.2% stake.

Cenovus’ deal for Husky is valued at C $ 23.6 billion, including debt, the companies said in a joint statement.

Cenovus said the deal would create Canada’s third largest producer based on the company’s total production behind Canadian Natural Resources Ltd. CNQ.TO and Suncor Energy Ltd. SU.TO.

Husky shareholders will receive 0.7845 of a Cenovus share and 0.0651 of a Cenovus share purchase warrant in exchange for each Husky common share, the statement said. Husky’s market value stood at C $ 3.2 billion as of Friday’s close, implying that Cenovus is offering a 19.5% premium on the all-equity deal.

Cenovus and Husky shares have lost 63% and 70% respectively this year, topping the Toronto Energy Index .SPTTEN by 53%.

The combined company is expected to generate annual synergies of C $ 1.2 billion and will operate as Cenovus Energy Inc with its headquarters in Alberta, Canada, the release said.

Cenovus CEO Pourbaix will serve as CEO of the merged company with Jeff Hart, currently Husky’s CFO, becoming CFO.

Cenovus said the combined company would be able to produce 750,000 barrels of oil equivalent per day (BOE / d).

The transaction was unanimously approved by the boards of directors of Cenovus and Husky and is expected to close in the first quarter of 2021, the companies said.

RBC Capital Markets and TD Securities act as financial advisors to Cenovus, while Goldman Sachs Canada and CIBC Capital Markets act as financial advisors to Husky.

($ 1 = 1.3132 Canadian dollars)

Reporting by Ann Maria Shibu in Bengaluru and Rod Nickel in Winnipeg; Written by Denny Thomas; Editing by Susan Fenton and Nick Zieminski

Original © Thomson Reuters

Originally posted 2020-10-25 09:46:11.

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