The federal government has approved two major energy takeover deals, green-lighting a $15.1-billion bid for Nexen Inc. by a Chinese state oil company and a $5.2-billion bid by Malaysia’s Petronas for Progress Energy.
Prime Minister Stephen Harper also announced new guidelines for evaluating proposed takeovers of Canadian companies by state-owned enterprises, including evaluating the possible influence of a foreign government in the enterprise.
The guidelines also indicate these could be some of the last foreign state-owned company takeovers in the oilsands: the new rules say that from now on those bids will only be granted in exceptional circumstances.
Investors have been waiting since July for a decision on the China National Offshore Oil Company (CNOOC) bid for Calgary-based Nexen.
And last October, Ottawa rejected the terms of Petronas’s offer for Progress, but the Malaysian firm had said it was open to altering the deal and trying again.
The prime minister emphasized that the decisions “are not the beginning of a trend but rather the end of a trend.”
“When we say Canada is open for business, we do not mean that Canada is for sale to foreign governments,” Harper said.
“To be blunt, Canadians have not spent years reducing the ownership of sectors of the economy by our own governments, only to see them bought and controlled by foreign governments instead.”
Future approvals in oilsands will be ‘exceptional’
The new guidelines for takeover bids by state-owned enterprises include one extra restriction for oilsands takeovers. Those acquisitions will only be allowed “on an exceptional basis.”
The considerations outlined for bids by foreign state-owned enterprises include:
– The degree of control or influence a state-owned enterprise would likely exert on the Canadian business that is being acquired.
– The degree of control or influence a state-owned enterprise would likely exert on the industry in which the Canadian business operates.
– The extent to which the foreign government in question is likely to exercise control or influence over the state-owned enterprise acquiring the Canadian business.
Canada is gradually increasing the threshold for takeovers that require approval under the Investment Canada Act, gradually raising the value of the bids that need to be assessed so that, in four years, only those worth more than $1 billion will require approval.
The threshold at which foreign state-owned enterprises require approval, however, will remain at $330 million.
Canadian oilsands production is dominated by about 15 companies, Harper said, but represents 60 per cent of all of the production of oil around the world that is not already in state hands.
“The government’s concern and discomfort for some time is that, very quickly, a series of large-scale controlling transactions by foreign state-owned companies could rapidly transform this industry from one that is essentially a free-market industry to one that is effectively under the control of a foreign government. And that is obviously not something that we think would be desirable,” Harper said.
Harper said Canada will continue to attract foreign investment because it’s a good place to invest, with a stable economy, low corporate taxes and an unrivalled regard for the rule of law.
“We’re boy scouts on the rule of law like nobody else in the world and I think it’s an attribute we’re proud of,” Harper said.
“So I think people who are seeking profitable opportunities will look at this [and] may not like all of it, but they’ll say, ‘Guess what, we can still make a lot of money in Canada and we want to go there.’ But if they have objectives beyond merely making some money in a way that benefits Canadian workers and Canadian communities, then that is the kind of investment we don’t want to encourage.”
‘Badly botched file’
Peter Julian, the NDP’s energy critic, said the government’s decision to “rubber-stamp” the CNOOC-Nexen deal was anticipated.
“I mean, this has been churning for months, and this has been a badly botched file,” Julian said on CBC News Network’s Power & Politics.
“We’ve seen complete confusion from this government, and today they’re trying to sugar-coat something that I think will be a rather bitter pill for Canadians, the vast majority of whom feel that this particular acquisition is not in Canada’s interests, and who want to see clarity around net benefit and who want to see above all public consultations on these kind of takeovers,” Julian said.
In a statement later, Julian called the CNOOC process a “farce.”
“While Conservatives admit that under the new rules this transaction is not a net benefit to Canadians, they have approved it anyway,” Julian said in the statement.
“Canadians should be very apprehensive about the long-term economic and environmental consequences. In the past, these kinds of takeovers have resulted in job losses.”
But Liberal MP John McCallum called it the right decision.
“On the broad decision, we think it’s good, but obviously we haven’t seen the details,” he said on Power & Politics.
“What conditions are there? Is there any degree of reciprocity? How are we to make sure the Chinese maintain their commitments? Is there a mechanism to make sure that they do?” McCallum said, “But assuming those conditions are met, I think that is the right decision.”
Next Monday was the latest deadline for Ottawa to rule the CNOOC bid, following a second 30-day extension last month. With CNOOC’s agreement, the government could have announced another extension, but it has been under increasing pressure to make a decision and clarify its foreign investment rules going forward.
Regulatory bodies in the U.S. and Britain must also give their approval to the CNOOC-Nexen deal, but the European Union earlier Friday gave its OK.
Reprinted with permission from CBC.ca