Mergers might be a few of the most fun locations for buyers to seek out new alternatives. In spite of everything, it’s two nice firms in lots of circumstances changing into even higher. And that’s what many may assume when taking a look at Cenovus Vitality (TSX:CVE) on the brink of purchase MEG Vitality (TSX:MEG).

The factor is, which is the power inventory to purchase earlier than the massive day? Let’s get into what occurred, what we’re ready on, and what buyers ought to do earlier than the merger.

What occurred

Cenovus and MEG introduced on August 22, 2025 a definitive association settlement whereby CVE would purchase all issued and excellent shares. The deal is valued at $7.9 billion, together with assumed debt. The deal will shut within the fourth quarter of 2025.

So why does CVE need MEG within the first place? A number of causes. MEG operates adjoining belongings, creating operational synergy. Combining would assist scale back duplication, consolidate infrastructure, and scale back prices. Actually, CVE estimates value synergies as much as $400 million per 12 months.

Moreover, MEG has lengthy life reserves, so CVE will get an prolonged runway for manufacturing. So now, by pooling operations, CVE can unfold fastened prices throughout a big base and use shared pipelines and infrastructure, in addition to negotiate higher phrases on inputs.

CVE

So now let’s have a look at which inventory appears extra engaging forward of the merger by analyzing every individually. For CVE, the acquisition is structured in money and inventory. The merger dynamics create an “choice premium” for proudly owning CVE proper now. If the deal goes by way of good and neat, CVE might profit from upside.

Actually, some analysts now imagine CVE appears undervalued. Numbers would help that, buying and selling at 16.5 instances earnings at writing and with shares up simply 4% within the final 12 months. So when the deal goes by way of, buyers may very well be in for a pleasant increase.

Total, analysts are bullish about the way forward for the power inventory. But after all, there are extra dangers on the facet of CVE than there are for MEG. MEG will likely be gone, and as an alternative will likely be an organization that now has to make use of these synergies and manufacturing to pay down large debt. Ought to there be any integration dangers, the worth paid may find yourself trying like a premium.

MEG

So then what about investing in MEG earlier than the purchase? As talked about, the corporate will get 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 extra, buyers have the selection to have their funding transformed to CVE shares or to take out the money. The selection is yours.

The factor is, the supply represented a 33% premium to the unique buying and selling value, one which’s now priced in. I imply, we are able to see why it was such an excellent deal from an earnings standpoint. The second quarter noticed $1.5 billion in income, up 9% year-over-year, with internet revenue at $282 million. Working prices had been among the many lowest in Canadian heavy oil, with debt down to simply $1.4 billion.

However the place does this go away buyers? Principally, if the share value is beneath that $29.80, you’re getting a deal. However the second it’s increased, there’s now not that deal. So there can definitely be some short-term upside for buyers earlier than the 12 months’s finish.

Backside line

All thought of, whether or not you purchase will come all the way down to your personal private objectives. If you will get a deal, then shopping for earlier than the merger could be a good suggestion in case you go together with MEG within the quick time period. In the meantime, in case you’re on the lookout for a multi-year purchase, then CVE is a much better alternative. In both case, buyers will definitely need to keep watch over these two power shares.