On Thursday, Husky Energy shocked investors when it announced it will abandon its hostile bid for MEG Energy.  Husky announced last fall its intention to takeover the oilsands company, now says it could not win enough MEG Energy shareholder support in its bid.  Getty Images/AFP photo by David Boily.

Husky Energy stocks up over 12%

Husky Energy says it will no longer pursue its hostile takeover bid of MEG Energy.  The Calgary-based company says it could not get enough MEG Energy board of directors and shareholder support for its bid after the Alberta government ordered output cuts which boosted oil prices.

Following the announcement, Husky shares jumped by over 12 per cent while MEG Energy shares dropped 36 per cent.

Husky announced its intentions to takeover MEG in September.  The company said its plan was to double down on heavy oil production, despite pipeline bottlenecks and flagging prices for Canadian crude.

But after the Notley government production curtailments of 8.75 per cent beginning January 1, Canadian prices surged.  Husky said in a statement that the move by the Alberta government “departed from free market principles, introducing uncertainty through the imposition of government-mandated production cuts”.

Husky, an integrated company, had benefitted by processing cheap Canadian crude at its refineries.

In a note, CIBC analyst Jon Morrison said the Alberta government’s decision to cap production along with faltering oil prices likely swayed Husky to not extend its offer to complete the deal.

“Given the outcome of the tender process, Husky will continue to focus on capital discipline and the delivery of the five-year plan,” said CEO Rob Peabody in a statement.

Last week, Husky put its Prince George, British Columbia, refinery on the block as well as its chain of gas stations.  The company says the assets have been deemed “non-core”.

“MEG Shareholders’ rejection of the Husky offer confirms that the bid did not fully recognize the quality and long-term potential of MEG.” said Derek Evans, president and CEO of MEG Energy.

In a note, Eight Capital Research said a sharp decline in MEG’s stock could spur an “opportunistic” offer.