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Hong Kong-linked Husky to Combine with Cenovus in $3.8 B Deal

On October 25, 2020, Cenovus Energy announced that it was purchasing Husky Energy in a deal worth $3.8 billion, or $23.6 billion inclusive of debt. The merger between the two Calgary-based oil and gas firms is expected to be completed in the first quarter of 2021. It may even be a sign of things to come, with Cenvous CEO Alex Pourbaix predicting that consolidation could become more common in the beleaguered Canandian oil & gas sector. 

The highly publicized deal is further underscored by a Chinese connection via Hong Kong billionaire Li Ka-Shing. Li – Hong Kong’s richest man and majority stakeholder in Husky since 1991 – has since retired and granted control of CK Hutchison Holdings, the multinational conglomerate, to his son, Victor Li. 

Husky is controlled via Hutchison Whampoa Europe Investments SARL and L.F. Investments SARL, which hold 40.19% and 29.32% of the firm’s shares, respectively. According to Husky’s 2020 management information circular, Hutchison Whampoa Europe SARL Investments is “100% indirectly owned by CK Hutchison Holdings” and L.F. Investments SARL is “indirectly wholly-owned by a trust of which members of Mr. Li Ka Shing’s family are discretionary beneficiaries.” In turn, the Li family holds 30.1% of CK Hutchison Holdings. Both are reportedly supporting the transaction, and the new deal will see Li Ka-Shing linked-entities retain 27.2% of the newly merged firm. 

Husky shares have fallen sharply from their 2008 peak, with Li’s majority stake declining by over $20 billion in overall value. The pain continued in 2020 according to data collected by Reuters, as “Cenovus and Husky shares have lost 63% and 70% respectively this year, exceeding the Toronto energy index SPTTEN loss of 53%.” While both companies have struggled mightily in recent years, there is hope that the move will create “cost and capital synergies, enhance free funds flow generation and support investment grade credit profile.” The deal allows Cenovus to “shor[e] up its defenses against an anti-oil sands movement that could get a boost if Joe Biden is elected as the next president of the U.S.” Cenovus’ downstream capacity is boosted with the addition of Husky pipelines and refineries in the American midwest. Bloomberg reports that this will reduce exposure to the Western Canada Select benchmark price, which trades at a discount compared with West Texas Intermediate.

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