Industry Canada media lockup deals with two takeovers

OTTAWA – The federal government will shortly announce decisions on two key foreign takeover deals involving domestic resource firms, The Canadian Press has learned.

The prime minister will announce whether he is giving the green light to the China National Offshore Oil Company in its $15.1-billion friendly bid for Alberta-based Nexen (TSX:NXY).

Stephen Harper will also say whether a pending takeover of natural gas company Progress by Malaysian state-owned company Petronas will go ahead.

An official from the Prime Minister’s Office briefing reporters in a media lockup told them the number of takeover deals involving state-owned companies reviewed by Investment Canada has soared from just one per cent five years ago to more than 20 per cent in 2011.

In order to approve such deals, the government has to decide whether they provide a “net benefit” for Canada based on six factors.

But the test applied in those circumstances has been widely criticized for a lack of clarity and consistency.

The spokesman said “the difference between private-sector investment and SOE (state-owned enterprise) investment obviously matters.”

He said the domestic and foreign policies of such state-owned enterprises “may not be compatible with those of Canada.”

Meanwhile, word of the media lockup in Ottawa immediately sent Nexen shares into a tailspin.

The shares plunged some 15 per cent following the news, trading as low as $20.99 before regaining some ground to close down more than six per cent to $23.29 on the Toronto Stock Exchange.

Indeed, trading was briefly halted because the shares dropped so precipitously. The exchange has a “circuit break” policy that automatically halts trading if a stock swings more than 10 per cent within a five-minute period.

The federal opposition parties have said the government’s investment review process is too secretive and doesn’t set out clear enough guidelines on what constitutes a net benefit.

Ottawa had previously delayed its decision on the Nexen deal in part because it wanted to establish new rules under the Investment Canada Act.

Canada’s spy agency raised a red flag on foreign investment by state-owned firms in its annual report earlier this year.

Though CSIS didn’t name specific countries or companies, it said certain state-owned enterprises have pursued what it called opaque agendas or received clandestine intelligence support for their pursuits in Canada.

Harper has said the Nexen-CNOOC deal “raises a range of difficult policy questions.”

A year before their acquisition deal was announced, Progress and Petronas formed a partnership to jointly develop shale natural gas in northeastern B.C. and look at exporting the gas from the West Coast in liquid form.

CNOOC and Nexen also had a pre-existing relationship. Last year, CNOOC scooped up Opti Canada, Nexen’s beleaguered minority partner in its troubled Long Lake oilsands project. The two firms also worked together in the Gulf of Mexico.

While Nexen’s headquarters are in Calgary, its strategic importance to Canada is questionable. Only about 30 per cent of its predicted daily production in 2012 is from its Canadian operations, with the vast majority coming from offshore platforms in the North Sea and elsewhere around the globe.

CNOOC had taken great pains to make sure its case for buying Nexen looks air-tight.

The company laid out an offer, both publicly and in private discussions with regulators, that catered directly to the Investment Canada Act.

It committed to keeping management in Canada, listing on the Toronto Stock Exchange, maintaining Nexen’s corporate social responsibility program, sticking with its capital investment plan and making Calgary the head office of its North American interests.

Looking for more?

Get the Best of Maclean's sent straight to your inbox. Sign up for news, commentary and analysis.