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Husky Energy Inc.’s desire to snap up MEG Energy Corp. appears to have dissipated in recent weeks, the result of a recalculation of its financial prospects.

Husky shocked investors Thursday when it received enough support from MEG shareholders to extend its $2.5-billion bid but elected not to.

MEG chief executive officer Derek Evans offered to talk to Husky CEO Rob Peabody earlier this month, as the deadline approached, but got no response, MEG vice-president John Rogers said Friday. It was one of three times since Husky launched its offer in late September that the two sides had contact during the process.

“We approached them, and they never got back to us,” Mr. Rogers said.

In its statement Thursday, Husky cited a lack of support from MEG’s board among the reasons for its decision to bail.

The development has fuelled speculation about what happened behind the scenes. Big questions remain: Which shareholders did not tender when there was no other bid on the table after 105 days? And why did Husky opt to throw in the towel when it could have carried on?

Shares in both companies fell on the Toronto Stock Exchange Friday as investors digested the recalibrated prospects. Husky fell 4 per cent, and MEG sank almost 3 per cent after tumbling 36 per cent the day before.

As recently as Jan. 7, the suitor, which is majority-owned by companies controlled by the family of Hong Kong billionaire Li Ka-shing, issued a reminder to MEG shareholders to tender. It received fewer than two-thirds of MEG shares, which would have deemed the offer successful, but more than 50 per cent – enough to issue an extension.

In its statement Thursday, Husky suggested that the calculus had changed when Alberta Premier Rachel Notley imposed an almost 9-per-cent cut to oil production in the province to deal with a massive glut caused by insufficient pipeline capacity. Husky, which produces oil and operates refineries, was highly critical of the move, saying it amounted to meddling in the market.

However, the temporary cuts were announced in late November, and the discount on Canadian heavy crude shrank almost immediately. To be sure, the price spread narrowed to the tightest in about a decade this week, but MEG’s oil sands assets, located south of Fort McMurray, Alta., are expected to operate for many years.

Husky spokesman Mel Duvall dismissed any notion that some undisclosed factor – such as a disagreement among the company’s directors on whether to proceed – played into its decision about MEG. “The reasons we decided not to extend are exactly as we laid out in our news release. Throughout the duration of the offer period, MEG’s board of directors opposed our offer and urged shareholders to reject the offer right up until the deadline,” he said in an e-mail.

MEG’s two largest shareholders, China’s CNOOC Ltd. and Boston-based Highfields Capital Management, have not disclosed whether they tendered to the bid. Portfolio managers have said they were surprised that any shareholder balked, given the expectation MEG’s shares would tumble if it was no longer in play.

Husky shares surged after it announced it was walking away from the bid, indicating investors were relieved that its financial position would not deteriorate as it integrated a major acquisition. The sentiment was echoed by Moody’s Investors Service, which had warned that the company would have knocked its production and refining capacity out of whack.

“Leverage metrics at Husky in 2019 would have been weakened by acquiring MEG,” the bond-rating agency said. “The integration of MEG would have also created a gap in Husky’s downstream integration of North America bitumen and heavy oil production, taking nearly two years to catch up with the near full integration that Husky benefits from today.”

Earlier this month, the company said it was studying a sale of its Canadian gasoline retail network, along with a small refinery in British Columbia, which according to some analysts' estimates could generate proceeds of about $1-billion.

For its part, MEG said it expects to issue an update of its plans for 2019 shortly. The company “dodged a bullet” when it became clear it would carry on as a standalone company, said Greg Pardy, an analyst at RBC Dominion Securities. He upgraded the stock to “outperform” based on prospects for increasing production and impending additions to its shipments on a major U.S. pipeline to Texas.

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