MEG Energy’s Christina Lake oil sands development project. Credit: MEG Energy Corp.

The board of Canadian oil sands producer MEG Energy has turned down Husky Energy’s C$6.4bn ($4.95bn) hostile acquisition bid, claiming that the offer undervalued the company.

Earlier this month, Husky made an offer to purchase all the outstanding shares of MEG Energy for either C$11 ($8.52) in cash or 0.485 of a share per MEG share. The deal includes the assumption of around C$3.1bn ($2.4bn) of net debt.

Husky at the time said that the transaction will enable the combined company to have aggregate upstream production of more than 410,000 barrels of oil equivalent per day (boe/day) and downstream refining and upgrading capacity of around 400,000bpd.

Accusing the bid of being ‘opportunistic’, MEG Energy’s board stated that its standalone plan is worth ‘substantially more than the value’ proposed by Husky.

Following a strategic review of the company’s business plan and operations in June, the board appointed Derek Evans as the new CEO in August. The company now aims to create substantial free cash flow over the next several years.

"MEG is now at an inflection point with a low-risk business plan and a clear line of sight to significant free cash-flow generation commencing in 2019."

MEG Energyboard chairman Jeffrey McCaigsaid: “The Husky Offer significantly undervalues MEG’s assets, technology, expertise and business prospects.  Over the last few years, there has been a substantial transformation of our business, culminating in the appointment of a top-rated CEO and the strengthening of our management team.

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“MEG is now at an inflection point with a low-risk business plan and a clear line of sight to significant free cash-flow generation commencing in 2019.”

The board has advised MEG shareholders not to accept the offer made by Husky.

However, Husky seems undeterred and has firmed up its stance to proceed with its pursuit of MEG Energy.

Husky Energy CEO Rob Peabody said: “We continue to believe the proposed combination of Husky and MEG is a unique opportunity to deliver substantial benefits to the shareholders of both companies.”