Cenovus merger with Husky goes to a vote today

Shareholders of Cenovus Energy and Husky Energy will vote today on whether the two companies should merge in an all-stock, multi-billion-dollar deal.

Both companies will hold separate virtual meetings with shareholders to discuss the proposal. At least two-thirds of shareholders from each company have to vote in favour of the deal for the merger to proceed. 

Cenovus announced its proposal to buy Husky in a $3.8-billion deal in October, described as a way to drive down costs and improve returns in a tougher economic climate.

When the proposal was announced, Cenovus and Husky shares had lost 63 per cent and 70 per cent of their value, respectively, in 2020.

The oil pipeline and tank storage facilities at the Husky Energy terminal in Hardisty, Alta. Husky’s CEO says the combined company will be better able to achieve climate targets, such as the goal to have net-zero emissions by 2050. (Larry MacDougal/The Canadian Press)

If shareholders approve the deal, it is expected to be completed during the first three months of 2021 and will continue to operate under the name Cenovus.

Three analysts who spoke to CBC News on Monday expect the deal to proceed.

Employees at both companies have been asked to fill out a form to update their resumes in advance of expected layoffs, according to company sources.

Combining the companies is expected to create annual savings of $1.2 billion, according to company executives, including about $400 million from “workforce optimization,” along with savings from IT and procurement.

“This is a time when there’s been a lot of pressure on prices in the industry. That’s why bringing the companies together is very helpful and constructive,” said Peter Letko of Montreal-based money manager Letko, Brosseau and Associates.

The firm is a shareholder in both companies with a 2.4 per cent ownership stake in Cenovus and a three per cent stake in Husky, said Letko, adding he is generally quite positive about the deal.

“We would be very pleased if they can deliver on the synergies they have promised,” he said.

There was some hesitation initially by Cenovus shareholders because they liked the company as a pure-play heavy oil operation. As such, they felt the company had upside to benefit from major export pipelines under development, including the Trans Mountain expansion and Enbridge’s Line 3, and rising crude prices as the economy recovers from the COVID-19 pandemic.

There was possible upside, said Robert Cooper with Acumen Capital Partners, but “frankly, heavy oil exposure hasn’t been a great spot to be for five years.”

The Husky merger will result in Cenovus adding much more refining capacity, in addition to branching out into owning gas stations, offshore terminals on the east coast and as far away as the Asia-Pacific region.

Between 1,720 to 2,150 jobs will be cut as the companies will look to slash 20 to 25 per cent of their combined workforce, which is about 8,600 employees and contractors. The majority of job losses will be in Calgary, where both firms are headquartered.

“Sadly, the people costs and the G&A (general and administrative expenses) are a huge synergy here,” said Cooper.

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