Cenovus to cut up to 25% of combined workforce with Husky Energy after merger
The $3.8-billion merger between Cenovus Energy and Husky Energy will result in a trimming of the workforce by as much as 25 per cent, CBC News has confirmed.
"The estimate is that the reductions will be approximately 20 per cent to 25 per cent of the combined workforce, which is about 8,600 employees and contractors," Reg Curren, senior media advisor for Cenovus, said in an email to CBC News on Tuesday, two days after the merger was announced.
The majority of the job cuts of 1,720 to 2,150 positions are expected to take place in Calgary, where both firms are headquartered.
The new company will operate as Cenovus Energy and will be based out of Calgary.
"As with any merger of this type, there will be overlap and there will be some difficult decisions as we work to create a combined organization best positioned for the future," Kim Guttormson, communications manager at Husky, said in an emailed statement.
Deal generally applauded
Cenovus CEO Alex Pourbaix said the merger would create a new entity that's stronger, more resilient and operating with "significantly reduced" risk to market volatility.
His counterpart at Husky, CEO Rob Peabody, said the deal would allow the combined companies to "make better returns in a tougher environment."
Analysts generally applauded the surprise Cenovus-Husky hookup for its operational advantages but criticized the plus-20-per-cent premium in the price for Husky.
"The deal does make strategic sense," said Manav Gupta of Credit Suisse in a note to investors.
"Like U.S. E&P (exploration and production companies), Canadian energy companies also need to come together, cut costs and become leaner to better adapt to lower energy demand in [a] post-pandemic world."
Both companies are carrying a relatively hefty amount of debt and that's why joining forces made financial sense.
While the oilpatch has struggled for many years, this deal is happening in a remarkably unique time in the industry, with many companies bleeding money with historically low oil prices that even turned negative this year.
Cenovus shares fell by as much as 15 per cent to $4.15 in Monday trading in Toronto before closing down 8.4 per cent at $4.47.
Husky, meanwhile, gained as much as 14.2 per cent to $3.62 before closing up 12 per cent at $3.55
Earlier in 2020, Cenovus and Husky shares had lost 63 per cent and 70 per cent of their value, respectively.
Cenovus expects to find savings of $1.2 billion.
Richard Masson, an executive fellow with the school of public policy at the University of Calgary, said while the layoffs involved with the merger are not good news for Calgary or Western Canada, they will likely make the company stronger and better positioned in the future.
"We've been billions of dollars in capital spending down for the last few years, and it's just one more thing on top of the many things we've already had. It's a very tough market," he said.
Masson said while corporate tax cuts implemented by Alberta's provincial government will help long-term, the biggest issues right now are low oil prices, lack of pipeline access and tough financial markets — which is why companies are focused on cutting costs.
"What companies need is higher oil prices and more stability in the oil price to give them confidence they're going to want to invest again," he said.
More mega-mergers likely, analyst says
The all-share deal will likely spark more mega-mergers among Canadian oil and gas majors, according to a veteran oilsands analyst.
"This is likely just the start of big deals in Canadian energy land and thus it begs the question of who is next?" said analyst Phil Skolnick of Eight Capital in a report on Monday.
"As seen in the U.S. with the accelerated M&A activity, when there's one meaningful transaction, there's likely more to come."
Several industry observers point to Calgary-based oilsands producer MEG Energy Inc. as the leading potential target, noting Husky's expired $3.3-billion hostile takeover attempt of its smaller rival two years ago.
The Husky-Cenovus merger calls for Husky shareholders to receive 0.7845 of a Cenovus share plus 0.0651 of a Cenovus share purchase warrant in exchange for each Husky common share if the deal is concluded.
Cenovus shareholders would own about 61 per cent of the combined company and Husky shareholders about 39 per cent.
The transaction must be approved by at least two-thirds of Husky's shareholders but Hong Kong billionaire Li Ka-Shing controls 70 per cent of Husky's shares and has agreed to vote them in favour of the deal.
Third-quarter results expected this week
The announcement Sunday came just as Calgary's oilsands companies are about to start rolling out third-quarter financial results, with Suncor Energy Inc. set to report Wednesday and both Cenovus and Husky scheduled to report on Thursday.
Alberta Energy Minister Sonya Savage said in a statement that she predicts opponents of Canada's energy sector will "seize upon today's news."
"But projections show continued global demand for fossil fuels well into the future," she said. "We believe that Canada should not cede that market to countries like Russia and Saudi Arabia."
"As companies across the globe navigate unprecedented economic times, job restructurings are an unfortunate reality of weathering the storm.
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