Alberta Premier Alison Redford asked the federal government to impose tougher management and employment conditions on Cnooc (883) Ltd.’s $15.1 billion takeover offer of Nexen Inc. (NXY) before approving the transaction, according to a person familiar with the matter.
Redford wants guarantees that at least 50 percent of Nexen’s board and management positions will be held by Canadians, the person said on condition they not be identified because the discussions are confidential. The request came in a recommendation provided to Industry Minister Christian Paradis and the government’s investment review division.
Alberta’s conditions may impose additional costs and risks for Cnooc at a time when oil-sands producers face a rising supply of North American crude and a lack of pipeline infrastructure threatens to stall sales. Prime Minister Stephen Harper’s government is reviewing the bid under the nation’s foreign takeover law, which specifies transactions need to have a “net benefit” to the country in order to win approval.
Other recommendations made by Redford’s government are for Cnooc to maintain workforce levels for at least five years, to strengthen commitments to keep planned capital spending and to clarify plans for research and development, the person said, adding Alberta’s government has indicated it would not object to the transaction if the conditions were met.
Jay O’Neill, director of communications for Redford, said the premier has said the transaction is beneficial. He declined to comment directly on the details of Alberta’s submission to the federal government.
“We were asked for our position and we did submit that position,” O’Neill said. “Our premier has been pretty clear in terms of her discussions around the deal since it was first announced and that there does appear to be significant benefit not only for Alberta but also Canada.”
In the July 23 announcement of its $27.50 a share bid, Cnooc pledged to follow through on Calgary-based Nexen’s capital spending plans and maintain the company’s employment level and management, without giving details or a time frame.
Beijing-based Cnooc has also promised to make Calgary the head office of its North American operations, as well as list its common shares on the Toronto Stock Exchange.
Steven MacKinnon, a Canadian spokesman for Cnooc, said the company doesn’t comment on the regulatory process. Cnooc is controlled by state-owned China National Offshore Oil Corporation, which indirectly owns 64.4 percent of the company’s shares.
A spokeswoman for Paradis, Margaux Stastny, said she would look into the matter when contacted for comment. Paradis reiterated to reporters today that the Cnooc-Nexen bid would be closely scrutinized, and rejected opposition requests for public hearings on the pact. The government said Aug. 29 it had received Cnooc’s application. Canada has 45 days to examine the deal and may extend that deadline by 30 days as long as it notifies Cnooc before the initial review period expires.
While not bound by Redford’s recommendations, Canada routinely seeks the opinion of provincial leaders as part of its reviews. Opposition by Saskatchewan Premier Brad Wall to BHP Billiton Ltd. (BHP)’s 2010 bid for Potash Corp. of Saskatchewan Inc. foreshadowed the federal government’s rejection of that takeover.
Alberta’s push for firmer commitments from Cnooc may be an attempt to shield the province should a slump in energy prices encourage the company to change its plans.
Canada sued U.S. Steel Corp. (X) in 2009 over the steelmaker’s 2007 acquisition of Stelco Inc., saying it hadn’t complied with pledges it made on production and employment. The company argued a decline in economic conditions beyond its control caused a downturn in its business and made it impossible for it to meet the promises it made when it bought Stelco.
The government and the company settled last December, with U.S. Steel agreeing to maintain operations in Canada until 2015 and make C$50 million ($50.7 million) in additional capital investments.
As part of the specific undertakings proposed by Cnooc, which have not been made public, the Chinese company pledged 25 percent Canadian composition of its board, the person said. The company also pledged to maintain Calgary-based Nexen’s workforce at no less than 80 percent of current levels for three years, they said, a commitment the Albertan government wants to extend by two years.
Redford’s government is also recommending the federal government receive firm commitments from Cnooc on meeting environmental standards, the person said.
Nexen shareholders approved the bid on Sept. 20, with about 99 percent of those who voted casting ballots in favor. Nexen shares (NXY) were trading at $25.42 at 1:43 p.m. in New York, up 0.4 percent from yesterday and 7.6 percent below Cnooc’s offer.
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