Rejection brings a price
Refusal could damage relations with Beijing
— Canada can expect a chilly reception and damaged relations with Beijing if the Harper government dents China’s pride by refusing a $15.1-billion bid for a piece of this country’s oilpatch, observers say.
And other foreign investors will have occasion to pause if stateowned China National Offshore Oil Corp. is blocked in the friendly takeover of Calgary-based Nexen, they add.
Those investors would question Ottawa’s commitment to open markets and the government would take political heat — from both supporters and opponents of the decision — for once again not having a clear strategy for dealing with foreign takeovers.
Stock values among Canadian resource firms would almost certainly fall, some hard.
“There’s no good putting lipstick on a pig,” says John Manley, a former Liberal industry minister who now heads the country’s most influential business lobby group, the Canadian Council of Chief Executives.
“I don’t know how you construct a narrative to explain saying no to this transaction.”
On purely technical terms, the friendly deal announced July 23 is a no-brainer for the Nexen shareholders — they would receive a 61 per cent premium on shares.
But under the Investment Canada Act, deals involving WTO member countries valued at more than $330 million must be a “net benefit” to Canada. Just what constitutes a “net benefit” exactly is unclear, but Prime Minister Stephen Harper has said clarifications are coming soon.
In an apparent bid to ease Ottawa’s concerns, CNOOC has pledged to keep the head office in Calgary, seek a listing on the Toronto Stock Exchange and place some $8 billion of its assets under the control of Nexen’s management in Canada.
It also has promised to carry on Nexen’s social responsibility programs in Canada and around the world.
There is even some suggestion of funding for the province’s universities and likely more concessions to come.
Still, the bid has galvanized forces on both sides with alarmist predictions of gloom, if not doom, whichever way the decision goes.
The NDP opposition has already turned thumbs down on the proposal and even Harper is dealing with caucus members, such as Alberta MP Robert Anders, who have voiced displeasure.
U.S. politicians on both sides of the aisle have cautioned Ottawa against turning over natural resources to a Chinese stateowned company. Critics fear that CNOOC may answer more to Beijing than it does the market.
And the deal involves a Canadian national treasure, oil.
Mix all those volatile elements together and it’s no wonder that, following the July 23 announcement, the government froze.
Industry Canada has already asked for one 30-day extension to the process, which concludes before Nov. 11, and few would be surprised if it asked for another.
Sources in Ottawa and Calgary say they are working under the assumption that the federal government will ask the company for more time to decide on how to handle the deal, and that the company will readily agree.
That’s because there are still details to be worked out, and Harper will be out of the country for all of next week.