Q: Could you please comment on the offer by Strathcona Resources? Given Strathcona’s interest, what is likely to happen to MEG’s share price over the next few months?
5i Research Answer:
We think it is a highly opportunistic bid, at a too-low price and with not enough cash as part of the renumeration (it is mostly stock). We cannot blame Strathcona for the attempt, and it has already bought 9.2% of the company, but there is a reason that MEG did not want to discuss this. At 9X earnings, and barely 5X cash flow, the stock is worth more than the current bid. MEG stock has reacted strongly today. We expect either a higher bid from Strathcona or a new bidder to enter the fray. We would HOLD.