Backwards Progress and net benefit losses [Progress Energy/Petronas] – by Peter Foster (National Post – October 23, 2012)

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Opposition attacked Monday over rejection of bid for Progress Energy

The brusque press release issued by Industry Minister Christian Paradis late Friday night — announcing that he had turned down Malaysian state company Petronas’ $5.2-billion bid for Progress Energy because it didn’t represent a “net benefit” to Canada — inevitably led to a weekend whirlwind of speculation. Did that three-minutes-to-pumpkin statement indicate that the government was trying to bury something? Was this a prelude to nixing the $15.1-billion CNOOC-Nexen deal?

It transpires that this may have been all about government-to-government head butting. Or perhaps a better analogy would be going at each other like bull elephant seals, because, as fans of nature programs know, this tends to result in lots of collateral damage.

Sources suggest that when Ottawa told Petronas it wanted a further 30-day delay to get its policy straight on exactly what “net benefit” means, Petronas insisted on a decision. So the government said no. That meant Ottawa got its 30 days, but at the price of a potentially investment-chilling stock market debacle.

The opposition parties had a field day on Monday in the House, castigating the Conservatives for their lack of transparency. It was also a down day not only for the shares of Progress and Nexen, but for those of Celtic Exploration, which last week agreed to a $2.6-billion takeover offer from Exxon Mobil, and other potential takeover targets, such as Talisman and Encana. Billions were lost. One of the most conspicuous casualties was the Canada Pension Plan Investment Board, which owns 16% of Progress, whose shares finished down almost 10%.

Rumours of the messy reality meant that poor Mr. Paradis’ claim that this was a decision “taken after a careful and thorough review of the proposed transaction” looked a little disingenuous. Meanwhile, when he said he was turning the deal down, he wasn’t necessarily turning down the deal, since Petronas was now welcome to come back with a new — or maybe even the same — proposal. Progress CEO Michael Culbert blamed it all on a “communications breakdown.” He and Petronas officials were meeting with government officials on Monday to revive what, it seems, had never really died.

The heart of the larger government problem is exactly what a “net-benefit” test is meant to look like, especially for state-owned enterprises (SOEs) such as Petronas. Mr. Paradis’ statement certainly didn’t say. When that clarification comes, we shouldn’t expect it to be too clear.

For the rest of this column, please go to the National Post website: http://opinion.financialpost.com/2012/10/22/peter-foster-backwards-progress-and-net-benefit-losses/

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