CALGARY, Alberta (Reuters) - Nexen Inc shareholders overwhelmingly approved the oil producer’s takeover by China’s CNOOC Ltd on Thursday but the stock weakened as public opposition to a state-owned enterprise absorbing $15.1 billion of Canadian-owned assets appeared to grow.
Shareholder blessing of the deal had been seen as a formality, given the rich 61 percent premium that CNOOC offered on the price of Nexen’s shares. But the shares remain well below the $27.50 bid price due to uncertainty over the chances of the Canadian government giving the transaction the green light.
Prime Minister Stephen Harper has actively wooed Chinese investment to help develop the country’s energy resources, but recently even members of his government have broken ranks to publicly express discomfort with China taking such a large position, especially in the Alberta oil sands, one of the world’s biggest deposits of crude oil.
The Conservative government has launched a review of the deal to determine whether it meets a murky “net benefit to Canada” test.
“I think that’s healthy to have a good debate on whether this is in the best interest of Canada, so I‘m not surprised we’re getting all of those different views coming out,” Kevin Reinhart, Nexen’s interim chief executive, said following the vote. Holders of Nexen’s common shares voted 99 percent in favor of the deal, and preferred shareholders 87 percent in favor.
“In terms of how the transaction unfolds, I‘m not going to comment on that. The decision will be made behind closed doors, not in the public forum, hence we’ve stayed out of those conversations and will work with the regulators to make their decision,” Reinhart said.
Nexen shares were down 7 cents at $25.25 on the New York Stock Exchange on Thursday and up 2 Canadian cents at C$24.69 in Toronto. Edward Jones analyst Lanny Pendill told Reuters on Wednesday that he had recommended investors sell their stock to protect gains against political uncertainty over the deal.
The secretive nature of the government’s review, which lasts 45 days and can be extended by a further 30, is worrisome, said Peter Julian, member of Parliament for the opposition New Democratic Party.
“They haven’t defined net benefit. They haven’t put in place any kind of public consultation around it. It all seems to be taking place behind closed doors with lobbyists,” Julian said at the Calgary conference center where the shareholder vote took place. “There are many Canadians who have legitimate concerns about what this may do to that strategic resource.”
The government has promised to provide a framework for future such takeovers when it announces its decision on the transaction.
A CNOOC spokesman said the company welcomed the shareholder approval. The company has promised several items aimed at making the deal palatable in Canada, including moving its Western Hemisphere headquarters to Calgary, maintaining all of Nexen’s staff, and listing its shares on the Toronto Stock Exchange.
It will also keep the Nexen name, Reinhart told the meeting. “This tells me they understand who we are and what we stand for,” he said.
A poll released Thursday appeared to show public support weakening. A Sun News-Abacus survey showed 69 percent of Canadians say Ottawa should not approve the takeover, up 12 percentage points from a similar poll conducted in August. The survey was conducted online with 1,208 participants between September 14 and 18.
This week, Ted Menzies, Harper’s junior finance minister, said his Alberta constituents were split over the deal, with many voicing fear about foreign ownership of the resource sector.
Another Alberta Conservative MP, Rob Anders, was more blunt: “I‘m never a fan of state ownership of resources, particularly in China’s case, because I don’t believe it’s a benevolent state.”
Despite the deep discount on the shares, the odds of Ottawa approving the deal are much better than they were in a 2010 takeover bid by Australia’s BHP Billiton Ltd for Canadian fertilizer Potash Corp, said Bob Schulz, professor of strategic management at the University of Calgary’s Haskayne School of Business.
The Potash Corp takeover was effectively quashed by the Harper government.
One difference is that in the Potash case the province of Saskatchewan opposed a foreign takeover of one of its flagship companies, Schulz said. In Nexen’s case, the province of Alberta, the company’s home base, is in favor of more investment to boost development of the vast tar sands, he noted.
“Nexen was never going to get the cash they needed to go fully develop all their assets. The stock price was too low, there’s too much debt relative to the equity,” he said.
Editing by Peter Galloway