Nexen, Progress deals approved: What analysts and investors say

Canadian ministers cleared Chinese state-owned energy company CNOOC Ltd’s $15 billion bid to buy Canadian oil and gas producer Nexen Inc, allowing the largest foreign takeover by a Chinese firm to proceed.

The following is instant reaction from investors and analysts.

GARETH WATSON, VICE PRESIDENT, RICHARDSON GMP

“The government is still basically sending the message that state-owned enterprises coming into the M&A market for resource assets will be scrutinized fully.”

“At this point in time I don’t know if there is a firm framework in place, so has there been a tremendous amount of clarity? Without seeing any official announcements or publication out of the government it is tough for me to say, but at this point I haven’t necessarily seen anything that says that these issues have been clarified.”

MICHAEL SPRUNG, PRESIDENT, SPRUNG & CO INVESTMENT COUNSEL

“At the end of the day, I guess they found it very difficult to come up with any solid justification for not approving at this point in time. I think the one bit of solace that some people might take, is that they said future purchases by sovereign entities will be taken on with a much more higher degree of scrutiny.”

“I think the shareholders will certainly be happy and of course the nationalists will not like it. In reality what we’ve seen over the last few number of years is the huge cost escalations of developing these oilsands and other projects in the west and the money’s got to come from somewhere. I think the one solace we can take is the fact that the oil is in the ground in Canada and nothing is going to change that.”

“Certainly it’s going to generate a great deal of employment in Canada, but where is the real control going to be emanating from?”

BOB GORMAN, CHIEF PORTFOLIO STRATEGIST, TD WATERHOUSE

“We’re not surprised it was approved in some fashion. That seemed the most likely course of events. I think they struck what I would call an appropriate balance. On one hand, approving this deal, at the same time making it clear future state-owned enterprise offers would be approved under what they referred to as ’exceptional circumstances only”’.

“I think they’re sending a pretty clear message along those lines. He spoke in ideological terms as well about Canadians having seen government ownership of enterprise reduced and not necessarily wanting to see it increase on the part of foreign governments.”

“The market will be positive, though by and large, investors will contain their enthusiasm. It’s pretty clear that the government isn’t looking to set a precedent with this, but rather looks at this more as the exception than the rule.”

ROBERT BELLINSKI, ANALYST, MORNINGSTAR INC

“Anytime you open the field to buyers it’s a good thing. Considering that Canadian oil and gas companies are in the business of selling hydrocarbons, likely to China anyway, why not sell them all at once?”

KEITH MOORE, MANAGING DIRECTOR, MKM PARTNERS LLC

“When the deal was announced we thought it would eventually be approved with concessions, but that there was going to be a lot of headline risk.”

“I realize there was a lot of politics that went into this thing, but I think the overriding factor is that in order for Canada to be able to develop all those tremendous resources that they have is that they were going to need a lot of foreign capital. I think they probably played it very well, by pushing back quite a bit they were probably able to get concessions in both these deals, in Nexen and in Progress.”

On the stock volatility after the media briefing announcement:

“It was the wildest thing. I’ve been in the business 30 years and I don’t think I’ve seen one like this.”

“I mean, the idea that it was basically up all day, and then just after 2:30pm the thing totally craters.”

PATRICIA MOHR, VICE PRESIDENT, SCOTIABANK

“I’m not surprised that they have approved the transaction. However, what is a lot more important, I think, is just to see what the terms really are and what the policy really is in terms of how they intend to ensure net benefits for Canadians.”

BRENDAN CALDWELL, CEO, CALDWELL INVESTMENT MANAGEMENT

“Having set a very clear precedent of giving the Chinese government whatever they like, they have assured us they won’t be able to get away with it next time.”

PHIL WEISS, OIL ANALYST, ARGUS RESEARCH

“Every time Canada allows oil to go outside the U.S. it’s bad for us unless you believe the EIA (U.S. Energy Information Administration) report. To me it’s a potential negative because it takes away our opportunity to get oil from an ally.”

© Thomson Reuters 2012

SEC wrestles with Internet age in Netflix case

WASHINGTON (Reuters) – A U.S. regulatory probe of Netflix Inc over disclosures made on its chief executive’s Facebook page could prove an important test of whether a rule designed to prevent leaks to analysts can translate to the social media age.

Canada sees more investment in oil sands despite new curbs

OTTAWA, Dec 7 (Reuters) – Prime Minister Stephen Harper
voiced confidence on Friday that Canada would still attract the
investment it needs despite new curbs he has imposed on
state-owned enterprises…

Ottawa’s guidelines for investment by foreign state-owned enterprises

Canadian authorities approved the acquisition of Nexen Inc by CNOOC Ltd and the purchase of Progress Energy by Petronas, easing months of anxiety over the fate of foreign investments in Canadian resources.

The government also said it would impose stricter conditions on investments by state-owned enterprises in the future, and that it would welcome non-controlling minority investments by such enterprises in Canadian firms.

The Industry Canada guidelines put the free-market intentions of the buyer paramount and effectively preclude further acquisitions of large Canadian companies by foreign governments.

Below are Ottawa’s new guidelines:

It is the policy of the government of Canada to ensure that the governance and commercial orientation of SOEs are considered in determining whether reviewable acquisitions of control in Canada by the SOE are of net benefit to Canada. In doing so, investors will be expected to address in their plans and undertakings, the inherent characteristics of SOEs, specifically that they are susceptible to state influence. Investors will also need to demonstrate their strong commitment to transparent and commercial operations.

The minister will apply the principles already embedded in the act to determine whether a reviewable acquisition of control by a non-Canadian who is an SOE is of net benefit to Canada. Under the act, the burden of proof is on foreign investors to demonstrate to the satisfaction of the minister that proposed investments are likely to be of net benefit to Canada.

When assessing whether such acquisitions of control are of net benefit to Canada, the minister will examine, as part of the assessment of the factors enumerated in section 20 of the act, the corporate governance and reporting structure of the non-Canadian. This examination will include whether the non-Canadian adheres to Canadian standards of corporate governance (including, for example, commitments to transparency and disclosure, independent members of the board of directors, independent audit committees and equitable treatment of shareholders), and to Canadian laws and practices, including adherence to free-market principles.

The minister will assess the effect of the investment on the level and nature of economic activity in Canada, including the effect on employment, production and capital levels in Canada. The examination will also cover how and the extent to which the non-Canadian is owned, controlled by a state or its conduct and operations are influenced by a state.

Furthermore, the minister will assess whether a Canadian business to be acquired by a non-Canadian that is an SOE will likely operate on a commercial basis, including with regard to:

  • Where to export.
  • Where to process.
  • The participation of Canadians in its operations in Canada and elsewhere.
  • The impact of the investment on productivity and industrial efficiency in Canada.
  • Support of on-going innovation, research and development in Canada.
  • The appropriate level of capital expenditures to maintain the Canadian business in a globally competitive position.

Specific undertakings related to these issues may assist to supplement a non-Canadian’s plans for the Canadian business. Examples of undertakings that have been used in the past and could be used in the future, include, among other undertakings, the appointment of Canadians as independent directors on the board of directors, the employment of Canadians in senior management positions, the incorporation of the business in Canada, and the listing of shares of the acquiring company or the Canadian business being acquired on a Canadian stock exchange. Appropriate monitoring will be conducted in accordance with the ICA.

 

UPDATE 1-Canada OKs China, Malaysia energy company takeovers

OTTAWA, Dec 7 (Reuters) – Canada on Friday approved CNOOC
Ltd’s landmark $15.1 billion bid for Nexen Inc
, but said it would block virtually all new
attempts by foreign state-owned enterprises to…

Silver lining for Argent?

It may not satisfy its investors, but the gang at Argent Energy Trust will try and convince its owners that its latest acquisition, a US$120-million purchase of oil and gas assets in Texas, is a great deal.

Argent, a mutual fund trust under the Income Tax Act and which owns U.S. assets, will point to what it says are the favorable metrics: the deal is accretive to its 2013 cash flow and to reserves per unit and will lower both its 2013 payout and sustainability ratios.

And, despite the units trading below their $9.30 offering price, it will make that argument because the same group of assets it purchased were valued at US$170-million as recently as a few months back.

How do we know that? The assets — known as the Newton, Livingston and Double AA Wells North fields in East Texas — were the basis of an initial public offering filed last September. In that case, the issuer was Meranex Energy Trust, which had placed a value on them of US$170-million.

But as things materialized, investors weren’t prepared to pay US$170-million for the assets being put up for sale by Wapiti Oil & Gas LLC, a Houston-based privately held, growth oriented, North American exploration and production company. Its shareholders include Zell Credit Opportunities Master Fund LP and Mantucket Capital.

The deal — and the asset sale — didn’t occur, so Wapiti kept the assets. At the time the deal was pulled, one oil industry executive noted that it wasn’t clear why Meranex’s initial public offering didn’t proceed. “In some cases investors don’t like the asset, in other cases they don’t like the management team, in other cases it’s the price. Here it wasn’t clear but the reality is that the seller was not prepared to lower the asking price.”

Meranex is not alone in striking out when its category of issuers, Canadian-companies that own U.S. oil and gas assets and which don’t own any “non-portfolio property,” is considered. Over the past two years, six such companies have tried to raise capital in Canada and four (Eagle, Parallel, Argent and Crius) have been successful, while two, Meranex and North American Oil Trust, have struck out.

But the seller, Wapiti, had some other matters to attend to. It wanted to sell the Texas assets, in part because of its belief that come Jan. 1 2013, the U.S. government will, as a result of the so-called fiscal cliff negotiations, impose higher capital gains taxes. One source said the impetus for Meranex’s initial public offering was the U.S. presidential election held in early November, so the order was made: get it out the door by that date.

When Wapiti’s initial plan didn’t work, it put plan B into action: sell the asset by end of the year.

So it called at least two potential buyers, one of which was Argent.

It seems the two potential buyers both told Wapiti that they were not prepared to pay the US$170-million asking price. And why should they, given that investors came to a similar conclusion two months earlier. It seems the two buyers both indicated that US$120-million was about the maximum they would pay.

So one week back, Argent got the call: if you want it, it’s yours but you have to be ready to close by year end — a tough task given the time of the year. One irony is that because of the “low” price, the metrics automatically improve.

iPhone 5 Now ‘In Stock’ in Apple’s Online Stores for Several Countries

Just days after shipping estimates for new iPhone 5 orders improved to 2-4 business days, they are taking the final step with Apple now listing the device as “in stock” in many of its online stores.


We’ve noticed the new “in stock” quotes in Apple’s online stores for the U.S, Canada, Mexico, Australia, and New Zealand, while a number of other countries are still seeing estimates of 1-3 business days for the time being. Unlocked iPhone 5 models in the U.S. are also still seeing 1-3 business day estimates.

Apple has achieved supply-demand balance for the iPhone 5 just ahead of the holidays and even as the company is working to bring the device to more than 50 additional countries this month.

Apple’s deadlines for other holiday delivery of other products are also approaching, with U.S. customers having until December 12 to place their iPad mini orders with guaranteed delivery before Christmas. Other products are already unavailable for the holidays, with the new 27-inch iMac now seeing January shipping estimates as Apple works to deliver the first units to customers.