Originally published in the Financial Post
Alberta Indigenous Opportunities Corp. says it’s not in ‘the business of participating in mergers and acquisitions of the shares of publicly traded companies‘*
Alberta’s provincial Indigenous loan agency says it “is not in the business of participating in mergers and acquisitions of the shares of publicly traded companies,*” pushing back on a report that it could help finance Indigenous groups said to be in talks with oilsands major Cenovus Energy Inc. on a joint takeover offer of MEG Energy Corp.
A Bloomberg story earlier this week said the Alberta Indigenous Opportunities Corp. (AIOC) and its federal counterpart could provide financial backing for a group of First Nations and Métis communities in a potential joint bid with Cenovus to buy MEG as early as September.
But on Thursday, AIOC appeared to dismiss the idea, without flatly denying the report, after concerns were raised by the chair of Strathcona Resources Ltd. — whose hostile bid for MEG in May first put the oilsands producer in play — about the fairness of the government backing one bidder in an active, competitive M&A process.
“Alberta Indigenous Opportunities Corp.’s mandate is to backstop Indigenous communities’ investments in high-quality assets that will produce income streams for generations,” the AIOC said in a statement. “AIOC carefully examines the nature of a deal to ensure that there is minimal business risk before backstopping any deal.”
A request for comment from the federal agency in charge of Ottawa’s Indigenous loan guarantee program was not returned before publication.
The news that a rival takeover bid for MEG from Cenovus, first reported in the Financial Post, could potentially include financial backing from provincial and federal agencies for Indigenous partners seeking to join the deal sent MEG’s stock higher on Tuesday and drew criticism from Strathcona chair Adam Waterous, who said government financing would amount to a “direct subsidy” for Cenovus’ bid.
“As I said when the report first came out, we would be highly surprised if there was any truth to it,” he said in a statement responding to AIOC’s remarks. “Both AIOC and Cenovus are sophisticated and ethical organizations, and they would know that governments cannot use taxpayer money to pick winners to subsidize on a one-off basis in the middle of the competitive sale process.”
Concerns were also raised that AIOC chief executive Chana Martineau serves on the board of Cenovus Energy, while vice-chair Gary Bosgoed sits on MEG’s board.
“AIOC operates with the highest ethical and professional standards,” the AIOC said in a statement about its governance protocols. “The board of directors and our employees operate under a strict code of conduct that governs their actions and behaviours.”
MEG launched a sales process in June to review its options and invite competing bids after rejecting Strathcona’s unsolicited offer, calling it “inadequate” and “opportunistic” in a June circular to its shareholders.
Strathcona offered $4.10 in cash plus 0.62 of a Strathcona share for each MEG share. The implied value when the deal was announced in May was $23.27 per share of MEG, representing a roughly nine per cent premium to its pre-bid share price.
Cenovus was said to be seeking financing last month to support a rival offer for MEG, though the company has so far declined to comment and did not offer a response on Friday to the news that the AIOC would not get involved in M&A for publicly traded companies.
“In the context of a contested corporate transaction, the government really shouldn’t be subsidizing one side or another,” University of Saskatchewan law professor Dwight Newman said following AIOC’s statement. “I don’t know if anyone had talked about this issue before; it’s one they probably should have anticipated.”
A takeover bid for MEG that includes a large, direct Indigenous stake would be a first for the sector.
Although there are more examples of Indigenous communities acquiring stakes in oil and gas infrastructure, such as pipelines, it is rarer for Indigenous groups to have controlling or meaningful stakes in oil production, and there are not any First Nations or Indigenous groups holding a large stake in a major publicly traded oilsands producer.
If it weren’t for the complication of it being a contested transaction, which raises issues around fairness, Newman said, an Indigenous partnership in MEG could be an exciting opportunity, particularly if the stake was spread across a large number of communities, enabling each to maintain diverse investments in different sectors.
“It could seem exciting to have a number of Indigenous communities together having a stake in a really significant company that gives them economic opportunities that they didn’t have before,” he said. “It could breed a lot of alignment of interests around the growth of these industries and achieve a lot of the purposes of the loan guarantee program.”
*Adjusted by AIOC to include full context of response