CNOOC's (CEO) $15.1 Billion Takeover of Nexen (NXY) is Approved by the Canadian Government

This week, Chinese state-owned oil company CNOOC (China National Offshore Oil Corp) (CEO: Charts, News) moved one step closer to taking over Calgary-based gas producer Nexen (NXY: Charts, News) for $15.1 billion, after the Canadian government stated that it would allow the controversial takeover to proceed.

CNOOC's attempt to acquire Nexen started this July, and was approved by Nexen shareholders in September. The takeover represents the largest foreign investment by a Chinese company to date. CNOOC has promised to present an annual compliance report to the Canadian government, although the details of its commitment are not clear. Daily Chart Nexen, with a market cap of $14.3 billion, has oil and gas assets in the United Kingdom's North Sea, the Gulf of Mexico and the West African coast. It also expanded into Poland and Colombia in 2011. Nexen's most valuable Canadian asset is 656,000 undeveloped acres in the Athabasca oil sands in northern Alberta. PM Stephen Harper noted that it was a "difficult decision" to allow the sale of Canada's oil sands business to a foreign enterprise but it would represent a "significant opportunity" for Canada moving forward. Nexen's takeover also had a positive impact on the Canadian dollar, which is heavily reliant on its natural resources sector, and could pave the way for further foreign investments in the country's oil, natural gas and mining sectors. Ottawa also recently approved the acquisition of Alberta's Progress Energy by Malaysian state-owned oil company Petronas for $6 billion. However, PM Harper stated that future foreign takeovers would only be approved "under exceptional circumstances," and that the Petronas and CNOOC takeovers are "the end of a trend." Harper also responded to critics who have claimed that his government is selling off key Canadian energy companies to the highest foreign bidder. "When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments," he stated. Only 15 companies are currently allowed to operate in the Canadian oil sands. Harper had expressed concern in the past that "a series of large-scale controlling transactions by foreign state-owned companies could rapidly transform (the oil sands) industry from one that is essentially a free market to one that is effectively under control of a foreign government." Canada's Investment Canada Act has been modified recently in an effort to screen larger foreign investors more carefully. The foreign limit was increased from $330 million to $1 billion before it would trigger a government review, while takeovers by state-owned companies would still be subject to review at $330 million. The Chinese embassy in Canada released a positive statement regarding the CNOOC-Nexen acquisition, stating, "This is a market-driven, win-win cooperation based on mutual benefits, which we believe will surely bring tangible benefits to both companies and peoples of our two countries." University of Ottawa professor Patrick LeBlond also agreed with the positive impact of the deal. "If we have the guarantees that Nexen and CNOOC are going to continue maintaining employment, head offices and other higher value jobs in the country, I think overall this is a net benefit," stated LeBlond. Investors looking to get in on the deal should invest in shares of CNOOC, as Nexen is already trading with a high acquisition premium, at 37.35 times trailing earnings. Shares of CNOOC, available as an ADR to U.S. investors, trade at 12.5 times forward earnings. Other News About NXY What Next After Nexen? The CNOOC-Nexen deal has speculators looking for the next takeover target. CNOOC's Nexen Bid Likely Would Have Failed Under New Rules Would Canada's new investment laws have foiled CNOOC's takeover attempt? Other Stocks in the News Dell Reportedly Said No to Autonomy Before it Sold to HP Dell dodged a nasty bullet - Autonomy - that hit its rival HP. 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Published on Dec 11, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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