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Prime Minister Stephen Harper has been telling China that Canada welcomes its investment. Yet CNOOC Ltd.’s bid to purchase Canadian oil major Nexen Inc. for US$15.1-billion ($15.4-billion) pushes his government to a fork in the road, and its choices will have major implications for the country.
If Ottawa approves the bid, it makes good on its rhetoric and fends off the bad odour from its rejection of Australian miner BHP Billiton Ltd.’s hostile $39-billion bid for Potash Corp. nearly two years ago. However, make no mistake, it will make it hard to reject the takeover of other Canadian oil and gas ‘champions’ with depressed share prices that since the BHP/Potash saga have been seen as off limits, such as Encana Corp., Talisman Energy Inc. and Canadian Oil Sands Ltd., leaving Canadians with even less ownership and less control of an industry that is supposed to be the engine of their economy.
If Ottawa rejects the bid, it contains the selloff but loses credibility with investors and offends China, which Canada needs as a market for its oil and gas to reduce its dependence on the United States.
With CNOOC’s offer, China seems to be cleverly accommodating and even exceeding Canada’s foreign investment requirements, leaving little room for Ottawa to say no. Indeed, in interviews yesterday, CNOOC’s top executives said they are confident the deal will meet the “net benefit” test under the Investment Canada Act, even if formal discussions with Ottawa have not yet started.
“What gives us the confidence? In any M&A, one must look at the deal certainty, and we have done quite a bit of our homework,” said Fang Zhi, president of CNOOC International Ltd.
“But most importantly, this is a commercial transaction that is friendly and given time will prove for itself that it will bring net benefit to Canada. We are very confident of that part of the story,” Mr. Fang said.
Li Fanrong, president and chief executive of the Beijing-based, state-controlled Chinese oil company, said his company moved ahead with the bid because the Canadian government has been welcoming foreign investment to realize Canada’s resource potential.
“The Canadian investment environment is one of the best in the world,” Mr. Li said. “You have got a very stable political system.”
CNOOC is offering top dollar for Nexen, one of Canada’s top international independents that ran into trouble with its move into the oil sands. Nexen fired its CEO early this year as its major asset, the Long Lake oil sands project, continued to underperform. At US$27.50 in cash per share, the CNOOC offer represents a 61% premium over its closing price on July 20 and is so rich it’s unlikely to be exceeded by anyone else.
For the rest of this column, please go to the National Post website: http://business.financialpost.com/2012/07/23/nexen-deal-puts-ottawa-on-the-spot/