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The proposed $15.1-billion takeover of Calgary-based Nexen Inc. by majority Chinese state-owned CNOOC has inevitably brought out the reflexive economic nationalists, wailing collectivists, fretters about “hollowing out,” champions of “national champions” and peddlers of muddled metaphors.
Certainly, there is legitimate cause for concern about the degree to which Beijing might dictate to CNOOC, but the takeover in no way represents a “predator” stealing “our” oil. The Nexen board has approved the deal, which offers shareholders a 60% premium over the pre-bid price. Alberta and Ottawa retain significant power over Nexen, from ownership of the resource through regulation of exploration and development to stock market oversight and corporate taxation.
One of the more bizarre criticisms of the deal is that CNOOC’s preferential access to capital might put it in a position to outbid rivals. But should shareholders worry about the possibility of being overpaid?
One pundit suggested that it was “ironic” that Calgary was ostensibly welcoming CNOOC after the hard time it allegedly gave to Canadian state oil company PetroCanada when it turned up in the 1970s. In fact, Calgary quickly came to love PetroCan because it was dumb and thus ripe to be plucked. The bad news was that it was dumb with taxpayers’ money. That problem inevitably doesn’t arise – at least for Canadian taxpayers – with CNOOC, although I don’t mean to insult CNOOC by suggesting it might be as financially feckless or deceptive as Canada’s state oil boondoggle.
Some critics point to China’s mercantilist orientation: its alleged desire to gain control of commodities rather than simply buying them on the market. Again, insofar as this is true, it represents a losing proposition for China, not Canada. Others suggest that China threatens to take the place of the U.S. as the principle investor in Canadian petroleum. However, U.S. companies traditionally came to invest and teach, bringing enormous expertise. The Chinese are more concerned with coming to invest and learn from Nexen, whose management they plan to leave intact.
As for the issue of uncertainty over state control, the orientation of Chinese overseas investment was much less certain eight years ago, when China Minmetals came knocking on the door of Noranda and was rebuffed. The Harper Conservatives red-flagged this issue again in 2006 when they expressed concern about stateowned companies with “non-commercial objectives and unclear governance and reporting.”
Since then, however, Chinese state companies have shown themselves both independent and profit-oriented. Meanwhile two other Chinese state oil companies, PetroChina and Sinopec, have made multibillion-dollar investments in the oil sands.
For the rest of this column, please go to the National Post website: http://www.financialpost.com/todays-paper/CNOOC+much+fear/7055602/story.html