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Nexen Votes to OK CNOOC Deal, But Not Over Yet

Shareholders of Nexen Inc. last week voted to accept a $15.1 billion takeover offer by CNOOC Ltd., an arm of state-controlled China National Offshore Oil Co.

Investors cast a 99% majority of Nexen's common stock and 87% of the Calgary producer's preferred shares in favor of the deal. The favorable vote by money managers was no surprise. The offer was a rich $27.50 per common share, or a 66% premium over the average price for the 20 days before the bid was made on July 23 (see NGI, July 30).

At the same time as the shareholders cast their votes at a Calgary meeting, a national poll confirmed that popular political opinion is against the deal. A survey released by Sun News-Abacus said opinion runs 69% against the deal with only 8% of respondents clearly in favor.

A Nexen statement reminded investors that the takeover remains far from a done deal. Approval is still required from Alberta legal and financial authorities and the Conservative government in Ottawa. There is also speculation in Canada that British and U.S. authorities could block at least parts of the Chinese takeover because Nexen has interests in the North Sea and Gulf of Mexico.

The final Canadian say is in the hands of the federal cabinet under the national Foreign Investment Review Act, which gives ministers wide discretion under a vaguely worded "benefits test" for big corporate deals.

Neither federal nor provincial leaders have disclosed which way they are leaning. The takeover poses a political dilemma for the Canadian political right, which holds power in both Alberta and Ottawa. Among Conservatives the riddle goes like this: Why was it bad for Canada to have a homegrown national oil company but now good to let in a foreign one that belongs to an avowedly Communist government?

The Conservatives fought creation and expansion of Petro-Canada as a federal Crown corporation by Liberals and New Democrats in the 1970s and 1980s. When the Conservatives held power in the late 1980s and early 1990s, they held "privatization" share sales that turned Petro-Canada into an investor owned firm. The company has since disappeared in a takeover by Suncor Energy.

In Ottawa, the formal review of the Nexen deal began at the end of August. The legislative rules allow the federal cabinet 45 days to make up its mind but also provide for a 30-day extension to the review period.

Prime Minister Stephen Harper is believed to have at least paved the way toward approval of the Nexen takeover during a visit to China earlier this month. He secured a commitment by economic authorities in Beijing to grant at least a degree of "reciprocity," whereby Canadians will be allowed to increase ownership of businesses in China.

In Canada, outside the financial circles that stand to gain directly, the Nexen takeover aroused economic and political doubts from the moment it was announced. As in the United States -- where economic and political resistance, including a bipartisan coalition in Congress, blocked a $18.5 billion bid by CNOOC for Unocal Corp. -- Canada harbors widespread hesitation about turning over key elements of industry to foreign industrial empires.

The resistance to outsiders has blocked past deals involving U.S. and Australian companies. In late 2010 the federal government sided with vehement provincial opposition to reject a $38.6 billion attempt by Australian mining giant BHP Billiton Ltd. to take over Potash Corp. of Saskatchewan Inc., a global fertilizer producer based in its namesake province. The scheme jeopardized a "strategic resource" for Canada, explained the government in Ottawa.

Two years earlier, in 2008, federal authorities also intervened to stop a proposed takeover of the aerospace division of Vancouver-based MacDonald Dettwiler & Associates Ltd. by a U.S. heavyweight in the field, Alliant Techsystems Inc. The explanation in Ottawa was that the target of the deal represented a critical ingredient in Canadian know-how and technology development.

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