Despite the controversy generated by China National Offshore Oil Corp's (CNOOC) proposed $15.1 billion takeover of Canadian oil producer Nexen Inc. (TSX & NYSE:NXY), Thursday’s shareholders vote in Calgary is seen by industry experts as a mere formality.
But even if they approve, as most think, the offer of $27.50 per share in cash, which was well above the stock's market price when the friendly deal was announced July 23, the operation will need the approval from Canada’s government. And here is when the matter gets a bit more complicated.
The CNOOC-Nexen deal is now under federal government review to determine if the takeover represents a so-called net benefit to the Canadian economy, as required under the country’s foreign-investment laws.
Since CNOOC made an official application to the Canadian government in late August, mixed messages about the authorities’ position on the subject have generated increasing among investors. Shares in Nexen reflected the market tension Wednesday, closing at $24.67, down 8¢.
Senior Conservative officials, led by Prime Minister Stephen Harper, have suggested the issue of market reciprocity — or guarantees that Canadian investors will get access to Chinese assets — could play a key role in the ruling.
Pressure from the Southern neighbour could come into play as well.
The most recent U.S. show of disapproval came Wednesday, when Nebraska Republican Congressman Lee Terry urged President Obama in a blog to “Oppose CNOOC-Nexen merger, approve Keystone”:
Recently, Chinese state oil company, CNOOC, announced its intention to purchase Canadian oil company, Nexen, for $15.1 billion in cash. I have deep concerns about this merger and what it means for American national security and energy security in the future.
…With the purchase of Nexen, China will control a major North American oil company. China will firmly be positioned in our front and backyard.
Should the biggest ever foreign investment in the North American country get the green light, CNOOC has promised it will make Calgary the headquarters of its North and Central American operations, will join Canada’s main equities market, the Toronto Stock Exchange and will keep current Nexen employees.