Markets are watching for a potential white-knight bid for MEG Energy Corp. as oilsands producers prepare to release quarterly earnings amid the sector’s largest hostile takeover attempt in years. At Cenovus Energy Inc. ‘s second-quarter earnings call Thursday, company executives will speak publicly for the first time since the Financial Post reported last week the company was said to be seeking financing for a potential bid for MEG Energy. Cenovus has not confirmed whether it plans to move forward with a formal offer. MEG also declined to comment on the same report that suggested it had set a July 28 deadline for potential bids as it explores its options following Strathcona Resources Ltd.’s unsolicited takeover offer in May . MEG, a pure-play oilsands producer, will release results after markets close Thursday, with a conference call scheduled for Friday morning. Canadian securities law requires companies to immediately announce material information, such as formal takeover offers. However, legal experts say it is also common for potential buyers in a “friendly” deal process to begin with a non-binding, confidential proposal to kick-start talks before making a formal offer. MEG had launched a sales process in June to review its options and invite competing bids after rejecting Strathcona ‘s unsolicited offer, calling the bid “inadequate” and “not in the best interests of the company or its shareholders.” A former MEG executive, who asked not to be identified since he isn’t authorized to speak for the company, said Cenovus would be unlikely to make a formal bid without the expectation that it would have the blessing of MEG’s board. “MEG being in defence mode, if they feel there’s a risk that they’re going to lose this, they’re probably going to give their support,” the source said. “It’s kind of out of the MEG board’s hands now: either there’s a competing bid and they agree to it, or there isn’t. And then they either go to a vote or they’ve got to go back to (Strathcona) and say, ‘Would you pay a little more to get this?’ and they might or might not.” Cenovus has been floated for years as a potential acquirer for MEG since the two companies share adjacent oilsands operations at Christina Lake in northeastern Alberta, and there is potential for significant efficiency gains and cost savings from a combination, over and above the usual savings from cuts to overhead and administration. The two firms also share a history with MEG’s last hostile suitor, Husky Energy. The former oil producer made a failed run at MEG in 2018 before going on to merge with Cenovus just two years later in a blockbuster deal during a downturn in the oil market at the depths of the pandemic. But analysts and investors have also said that Cenovus may have a tough time mounting a rival bid for MEG, with the company in the midst of completing a major spending program to boost production and improve performance at its U.S. refining operations. Cenovus is expected to deliver weaker second-quarter results Thursday due in part to lower oil prices and production cuts from wildfires and planned maintenance. Cenovus executives had previously downplayed the possibility of joining the fray for MEG, but speculation began to heat up earlier this month when the company hosted an in-person, technical presentation on its upstream operations for analysts and investors. The presentation was seen by some as “trying to warm up the street” to the possibility of a bid, said Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners, which holds stock in both companies. “I think they will. I think they should,” Nuttall said of a potential bid from Cenovus. “An asset like this with such massive synergies does not come around every day. I think they’ll be required to submit a bid for for MEG. The question, then, is price.” A competitive bid will have to top Strathcona’s mixed offer to MEG shareholders of partial ownership in Strathcona, plus a cash payout. Strathcona offered $4.10 in cash plus 0.62 of a Strathcona share for each of MEG’s shares. When it announced the deal in May, the implied value was $23.27 per share of MEG, representing a roughly nine per cent premium to its pre-bid share price. Since then, the implied value has moved up along with Strathcona’s share price, reaching $25.77 per share at close Tuesday — representing a premium of roughly 21 per cent. Strathcona has argued a takeover would create a top-tier heavy oil producer with better access to capital and a stronger balance sheet. But MEG’s board reportedly rejected an overture from Strathcona in April, prompting the Waterous Energy Fund-backed company to formally launch its hostile bid a few weeks later. Strathcona began hoovering up shares of MEG on the open market in the first quarter of the year, accumulating nearly 10 per cent of the company by early May, prior to launching its formal bid. The moves are in keeping with a successful pattern for Strathcona chairman and Waterous Energy Fund chief executive Adam Waterous: target an undervalued or undercapitalized oil producer, build a meaningful stake, then pursue control through acquisition, board changes or strategic consolidation. But Waterous may face stiffer opposition this time from some MEG shareholders who have vowed to fight Strathcona’s bid. Critics say Strathcona’s offer undervalues MEG and worry that investors won’t be to trade shares as easily in the combined company, since most of the stock would be controlled by Waterous Energy Fund. “Strathcona’s bid is going to fail. I will fight aggressively, and have,” Nuttall said, adding that he had “a lot of respect” for Waterous. “I just don’t think it’s a good fit, and I think it’s dilutive as a MEG shareholder in every regard.” Waterous said in a statement Wednesday that MEG’s board continues to refuse to decline to include Strathcona in its sales process. Oilsands giant Cenovus Energy said to be preparing competing bid for MEGStrathcona's hostile bid for MEG Energy called the 'largest investment in the Canadian oilpatch in a decade' Market watchers have pointed out that even if Strathcona’s bid fails, the company could very well come out ahead, particularly in the event its large stake in MEG climbs in value in response to a rival bid emerging. Waterous has previously said the company would likely issue a special dividend of $10 per share if the bid for MEG falls through. • Email: mpotkins@postmedia.com