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The thick smoke signals sent by Prime Minister Stephen Harper in recent days on the proposed $15.1-billion takeover of Nexen Inc. by CNOOC Ltd. are a warning to the market that a wide range of outcomes is possible.
As the Prime Minister correctly noted, Canada’s response to China’s largest overseas takeover offer would have have big implications for the economy. It will also mark a point-of-no-return for the Canadian oil and gas industry.
For their part, shareholders, who get to vote on the bid Sept. 20 at a special meeting in Calgary, will likely take the money and run. CNOOC is offering $27.50 a share in cash, or a 61% premium relative to the stock’s value before the bid was launched. Not bad for a company that’s been underperforming for years.
Nexen’s leadership is also on board. In a shareholders’ circular on the deal made public Friday, Nexen’s board recommends shareholder approval because it expects the deal to benefit the company, its employees and other stakeholders based on CNOOC’s plan to establish Calgary as one of its international headquarters, keep its management and employees; implement and enhance Nexen’s spending plans, list CNOOC’s shares on the Toronto Stock Exchange, build on existing community and charitable programs.
It helps that the executive group is anticipating a nice payout. The circular says directors and senior executives will collectively receive $51.3-million in cash from various incentive awards, plus another $23.6-million by selling their shares to CNOOC. That doesn’t include golden handshakes to certain senior executives if they leave the company after the change in control.
The market has been betting on two outcomes: Most believe the deal will get federal approval because it fits known “net benefit” criteria under the Investment Canada Act. This is reflected in the stock price – Nexen shares closed at $25.45 on Friday, lower than the bid price but far higher than the stock price before the bid’s announcement. However, some believe there’s a risk it will be rejected, which explains why the shares are trading at a discount to the bid price.
The Prime Minister and the U.S. election campaign introduced new moving parts this week that suggest there are other scenarios.
For example, Mr. Harper said Canadian public opinion matters, that Canada will look at the long-term interests of the Canadian economy rather than just the net benefit of the deal to Canada, that Canada may seek reciprocity from China so Canadian companies are allowed to invest in China under the same terms as Chinese companies would invest in Canada. In the U.S., Republican presidential candidate Mitt Romney introduced an energy plan that would reboot energy ties with Canada, starting with the approval of the Keystone XL oil sands pipeline from Alberta to the U.S. Gulf Coast.
Here are some possibilities:
For the rest of this column, please go to the National Post website: http://business.financialpost.com/2012/08/25/outcome-of-15-1-billion-nexen-cnooc-merger-is-murky/