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Canada's Cenovus tumbles as analysts question $2.9 billion purchase of rival Husky

10/26/2020 | 11:29am EST
FILE PHOTO: Rows of steam generators line a road at the Cenovus Energy Christina Lake SAGD project south of Fort McMurray, Alberta, Canada

(Reuters) - Cenovus Energy Inc shares fell more than 10% on Monday as analysts questioned the Canadian oil producer's C$3.8 billion ($2.9 billion) all-stock purchase of rival Husky Energy Inc , which expands its refining exposure in a low-demand environment.

Husky Energy shares were up 6.3% at C$3.37. As of Friday's close, the deal valued Husky at C$3.83 per share, nearly 21% above its closing price that day.

The deal is the largest merger in the country's energy sector in nearly four years, according to analysts, and comes on the heels of other major consolidation announcements in the United States. Tudor Pickering Holt & Co said increasing integration is likely to cause investor consternation, as the brokerage sees greater returns potential in oil and gas production versus refining at the moment.

Raymond James analysts had a mixed view of the deal, questioning Cenovus' "pivot to reduce heavy oil exposure and add refining exposure" at a time when the market is turning in the opposite direction.

"The merger also greatly dilutes the quality of the upstream asset base, which has always been a key point of differentiation," the brokerage said in a note.

Credit Suisse analyst Manav Gupta said Cenovus was paying an "excessive" premium, given that it has superior assets.

Cormark Securities said the equity premium and lack of asset overlap would most likely create some short-term negative pressure on Cenovus's stock price on Monday.

Cenovus Energy's last big deal in 2017 involved the C$17.7 billion purchase of oil sands and western Canadian natural gas a
ssets from ConocoPhillips, which straddled the company with massive debt. (https://reut.rs/34smKB6)

The decision did not sit well w
ith investors as Cenovus replaced its CEO just months after the takeover. (https://reut.rs/3ouixEX)

(Reporting by Shradha Singh in Bengaluru; Editing by Ramakrishnan M.)

© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
CENOVUS ENERGY INC. -7.47% 6.44 Delayed Quote.-51.21%
CONOCOPHILLIPS -7.53% 39.56 Delayed Quote.-39.17%
CREDIT SUISSE GROUP AG 0.57% 11.525 Delayed Quote.-12.40%
HUSKY ENERGY INC. -7.71% 5.27 Delayed Quote.-49.42%
LONDON BRENT OIL 1.07% 48.18 Delayed Quote.-27.73%
RAYMOND JAMES FINANCIAL -1.90% 90.95 Delayed Quote.1.67%
WTI 0.92% 45.585 Delayed Quote.-26.73%
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