CNOOC's Nexen bid clears one hurdle, faces another

Opposition to CNOOC's bid for Nexen appears to be growing, with the deal now standing just a 50-50 chance of success.

PUBLISHED : Friday, 21 September, 2012, 2:57pm
UPDATED : Friday, 21 September, 2012, 5:46pm

Oil exploration giant CNOOC's (0883.HK) record-breaking bid for Canadian rival Nexen (Toronto: NXY) has cleared one hurdle with the Thursday approval of the deal by Nexen shareholders, even as a much bigger obstacle looms in the realm of public opinion where opposition appears to be building. Public opinion could be a major factor that ultimately decides the fate of this deal, which still needs  approval from a Canadian administration that has said it will consider national sentiment before making its final decision.

As a US native living in Shanghai, it's difficult for me to get a really good pulse on how Canadians are feeling about this deal, which was announced in July and will see CNOOC purchase Nexen for about US$15 billion. But based on the signs of growing opposition I'm seeing in media reports, I would say the deal only has a 50 per cent chance of getting approval from Toronto at this point. And even if it gets the green light, Canada could ultimately impose tough conditions that could ultimately lead CNOOC to decide to scrap the merger.

I initially said the deal, which would be the largest ever overseas energy purchase by a Chinese company, was likely to fail due Canadian concerns about such a major asset falling under Chinese control. But then citizens, politicians and other Canadians were surprisingly quiet in the first month after the announcement, leading me to say that perhaps the opposition wasn't as strong as I initially thought it would be. Now it seems that perhaps the opposition was just delayed, and is finally starting to surface as more people become aware of this deal.

Let's look at the latest news, which saw Nexen shareholder approve the merger by a wide margin in a vote on Thursday. That approval is hardly surprising, since CNOOC was offering a handsome 62 per cent premium over Nexen's share price just before the deal was announced.

Nexen shares closed up slightly at C$24.72 on Thursday, or about 10 per cent below the offering price of C$27.50, meaning there is still a degree of skepticism that the deal will get government approval. Shares had traded as high as C$26.37 shortly after the deal was announced, and the steady drop since then indicates that confidence that the deal would close has been falling steadily since then.

In the latest sign of potential trouble, Thomas Mulclair, a major Canadian opposition lawmaker, is being quoted saying he has "grave concerns" about the deal, since it would see Nexen purchased by "a foreign government that doesn't follow the same market rules as Canada." Another article cites a new online poll as saying that 70 per cent of Canadians oppose the deal, up 12 percentage points over a similar poll last month, while only 8 per cent approve of it.

Of course at the end of the day it really doesn't matter what Thomas Mulclair thinks, since he's only an opposition leader and not a member of the ruling party. Likewise, it's unclear how significant this new poll is, and the same article that cites the poll also says most members of Canada's parliament have not received any letters or calls of opposition from their constituents. Still, these early signs of resistance can't be an encouraging sign, and we could easily see the opposition noise get louder as Toronto gets closer to making its final decision.

Bottom line: Opposition to CNOOC's bid for Nexen appears to be growing, with the deal now standing just a 50-50 chance of success.

To read more commentaries from Doug Young, click on