Government Consents Next Hurdle for Cnooc in Nexen Bid
Nexen Inc. (NXY) shareholders’ approval of Cnooc Ltd. (883)’s $15.1 billion bid for the Canadian energy producer leaves the fate of the biggest Chinese takeover in the hands of three foreign governments as opposition mounts.
About 99 percent of the holders who voted yesterday cast ballots in favor of the takeover, S. Barry Jackson, Nexen’s non- executive chairman, said at a special meeting in Calgary. Cnooc, China’s largest offshore oil and natural-gas producer, agreed to pay $27.50 a share for Calgary-based Nexen in an offer announced July 23.
The deal still needs approval from the Canadian, U.S. and U.K. governments. Canada reviews foreign acquisitions valued at more than C$330 million ($338 million) to ensure there’s a “net benefit” to the country. Almost seven out of 10 Canadians say the government shouldn’t approve the Cnooc bid, according to a poll released yesterday by Abacus Data Inc.
“What we’re seeing is a wide range of opinions, as you’ve identified, and I think that’s healthy to have a debate on whether that’s in the best interest of Canada,” Nexen Chief Executive Officer Kevin Reinhart told reporters after the meeting. He declined to comment on negotiations between Cnooc and the three governments and said Nexen is responding to all data requests.
Sixty-nine percent of respondents to the Abacus poll oppose the deal, up 12 percentage points from a similar survey in August. The poll of 1,208 people from Sept. 14-18 has a margin of error of 2.9 percent.
Cnooc said it welcomed the Nexen shareholders’ vote and “will continue to pursue all regulatory approvals required to close the transaction,” according to an e-mailed statement from Peter Hunt, a spokesman for Cnooc.
Nexen rose 0.2 percent to close at C$24.72 in Toronto. The shares have gained 52 percent this year.
Commitments that Cnooc made when the deal was first announced will probably secure Canadian approval, said Bob Schultz, a strategic management professor at the University of Calgary. The undertakings included retaining Nexen employees, listing on the Toronto Stock Exchange and making Nexen’s Calgary office Cnooc’s headquarters for North and Central America.
Nexen isn’t a “Canadian icon” in the oil sands that should be “off limits” to foreign takeovers, such as Suncor Energy Inc. (SU), Cenovus Energy Inc. (CVE) and Canadian Natural Resources Ltd. (CNQ), because the majority of Nexen’s cash flow and assets are offshore, Schultz said yesterday in an interview.
Nexen produces crude from its Long Lake oil-sands project in Alberta, as well as projects in the North Sea, offshore West Africa and the Gulf of Mexico. U.S. authorities can block the sale of Nexen’s Gulf assets.
About 30 percent of Nexen’s oil and gas production is in Canada, according to Philip Skolnick, a research analyst at Canaccord Financial Inc. in New York who rates Nexen a sell and doesn’t own the shares. There’s a “low risk” the Canadian government will block the deal or impose onerous conditions, Skolnick said in a Sept. 19 phone interview.
The government said Aug. 29 it had received Cnooc’s application to buy Nexen. Canada has 45 days to examine the deal and may extend that deadline by 30 days. The federal government in 2010 rejected Melbourne-based BHP Billiton Ltd. (BHP)’s hostile $40 billion bid for Potash Corp. of Saskatchewan Inc., the second takeover since 1985 to be blocked under Canadian law.
Harper said he would release a “policy framework” for foreign takeovers with his decision on Cnooc’s bid. Investors are watching the government’s reaction for an indication of Canada’s openness to investment, Natural Resources Minister Joe Oliver said in a Sept. 18 interview in Tokyo.
The decision will impact global foreign direct investment in Canada and the country’s relationship with China, Peter Harder, senior policy adviser at Fraser Milner Casgrain LLP in Ottawa, said yesterday in a phone interview.
The government will consider “broader” issues in its review of the Cnooc offer, including how much of Canada’s energy assets it will allow state-owned companies to control, said Harder, the president of the Canada China Business Council and a former federal deputy minister of Industry.
Cnooc’s offer was “well constructed” to meet Canada’s net-benefit test, he said. “On the merits of the case, and on the broader considerations of the relationship, the deal at the end of the day ought to be approved.”
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