Mergers can be some of the most exciting places for investors to find new opportunities. After all, it’s two great companies in many cases becoming even better. And that’s what many might think when looking at Cenovus Energy (TSX: CVE) getting ready to buy MEG Energy (TSX: MEG).
The thing is, which is the energy stock to buy before the big day? Let’s get into what happened, what we’re waiting on, and what investors should do before the merger.
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What happened
Cenovus and MEG announced on August 22, 2025 a definitive arrangement agreement whereby CVE would acquire all issued and outstanding shares. The deal is valued at $7.9 billion, including assumed debt. The deal will close in the fourth quarter of 2025.
So why does CVE want MEG in the first place? A few reasons. MEG operates adjacent assets, creating operational synergy. Combining would help reduce duplication, consolidate infrastructure, and reduce costs. In fact, CVE estimates cost synergies up to $400 million per year.
Furthermore, MEG has long life reserves, so CVE gets an extended runway for production. So now, by pooling operations, CVE can spread fixed costs across a large base and use shared pipelines and infrastructure, as well as negotiate better terms on inputs.
CVE
So now let’s look at which stock looks more attractive ahead of the merger by examining each separately. For CVE, the acquisition is structured in cash and stock. The merger dynamics create an “option premium” for owning CVE right now. If the deal goes through nice and neat, CVE may benefit from upside.
In fact, some analysts now believe CVE looks undervalued. Numbers would support that, trading at 16.5 times earnings at writing and with shares up just 4% in the last year. So when the deal goes through, investors could be in for a nice boost.
Overall, analysts are bullish about the future of the energy stock. Yet of course, there are more risks on the side of CVE than there are for MEG. MEG will be gone, and in its place will be a company that now has to use those synergies and production to pay down massive debt. Should there be any integration risks, the price paid could end up looking like a premium.
MEG
So then what about investing in MEG before the buy? As mentioned, the company gets infused with $7.9 billion, or $27.25 per share. This was later boosted to $29.80 per share to beat out a rival bid. What’s more, investors have the choice to have their investment converted to CVE shares or to take out the cash. The choice is yours.
The thing is, the offer represented a 33% premium to the original trading price, one that’s now priced in. I mean, we can see why it was such a great deal from an earnings standpoint. The second quarter saw $1.5 billion in revenue, up 9% year-over-year, with net income at $282 million. Operating costs were among the lowest in Canadian heavy oil, with debt down to just $1.4 billion.
But where does this leave investors? Basically, if the share price is below that $29.80, you’re getting a deal. But the moment it’s higher, there’s no longer that deal. So there can certainly be some short-term upside for investors before the year’s end.
Bottom line
All considered, whether you buy will come down to your own personal goals. If you can get a deal, then buying before the merger would be a good idea if you go with MEG in the short term. Meanwhile, if you’re looking for a multi-year buy, then CVE is a far better choice. In either case, investors will certainly want to keep an eye on these two energy stocks.
