By David Benoit and Ben Dummett
Canada’s decision to block Petronas’ bid for Progress Energy is spooking investors in Nexen, also the target of a takeover attempt by a state-owned energy giant.
Progress Energy, a natural gas producer, had struck a deal to be sold to Malaysia’s Petronas for $5.21 billion. But Canada rejected the move late Friday night. Canada has left the door open to a potential deal, but the move was surprising to analysts.
Progress shares were dropping 11% to $19.32 in Toronto on Monday.
Nexen shares are down 7% to $23.65 in recent trading, well below the $27.50 that Cnooc offered in July.
Highlighting that the market was making a clear distinction between measuring the risk of takeover deals initiated by state-owned and non-state-owned companies in Canada: Celtic Exploration, which has agreed to be acquired by Exxon Mobile , was recently only down around 1%.
Bernstein analysts warned the the decision to block Petronas “has increased the probability that the CNOOC/Nexen deal will not be approved and sends a clear signal that Canada is not as open to oil and gas M&As as it has appeared.”
But, Bernstein still expect the deal to get approved and UBS also cautioned not to lump the two deals together.
Cnooc-Nexen’s chances of success are better because Nexen’s operating cash flow, capital expenditures and reserve base “are not entirely Canadian,” the analysts argue. Meanwhile, Cnooc, unlike Petronas, is publicly traded, and thus more transparent, UBS said.
“We believe Cnooc has been quite proactive in its commitments toward ensuring the net benefit of the transaction to Canada,” UBS wrote.