The $15-billion proposed takeover of Calgary-based Nexen Inc. by a Chinese oil producer will face a review by both the federal industry minister and the federal Competition Bureau.
In a statement, Industry Minister Christian Paradis confirmed that he will examine the acquisition under the Investments Canada Act.
Paradis says the act requires him to look at how the deal affects investment and employment in Canada, production and resource processing in Canada, and the degree of Canadian involvement in future business.
He says he will also be looking at how the new arrangement would affect productivity and competition in Canada, and how well the deal fits in with national policies and Canada’s ability to compete in global markets.
He said the Competition Bureau will take a look at the arrangement to see if it substantially lessens or prevents competition in Canada.
He did not give a timeline for the reviews.
“Where an investment is subject to review under the act, my approval is required prior to implementation,” Paradis said in the statement.
“I approve applications where I am satisfied that a proposed investment is likely to be of net benefit to Canada.”
The companies gave Ottawa a heads-up, Nexen chief executive Kevin Reinhart told a conference call earlier today.
“There was some work in preparing for conversations with the government; initial phone calls were made to them, but it is premature to talk about any of the reaction,” Reinhart said.
“We will work together to file the necessary applications and to work with the various governments to make sure that they have all of the information they need to make the right decision.”
The takeover will put the prime minister and premiers to the test, forcing them to decide how to handle the future of the oil patch, said University of Calgary economist Jack Mintz.
It will be a tough call for the federal government, which has to decide whether the deal is a net benefit to Canada as a whole, and not just to shareholders.
“I think it’s going to be fascinating,” Mintz said in a phone interview.
It’s the biggest foray of a Chinese state-owned enterprise into Canada to date.
Mintz said the China National Offshore Oil Company prepared its bid with an eye to regulators by offering a 61 per cent premium to shareholders, and stressing that it intends to keep the Calgary-based management intact.
“The government is going to have to look carefully at the net benefits, leaving aside the large premium to shareholders,” Mintz said. “It’s going to be hugely political.”
Whether Ottawa decides if that arrangement helps Canada as a whole will depend partly on how Alberta sees the presence of a major Chinese player in its midst.
Indeed, the last time Ottawa faced a similar challenge — when Australia-based BHP Billiton Ltd. launched a hostile takeover bid for Saskatchewan’s Potash Corp. — the federal government nixed the deal under pressure from Premier Brad Wall and corporate players in the oil patch.
“The reaction of the Alberta government will be important,” Mintz said.
Saying no has repercussions, however.
“China will be looking elsewhere….to put their money. They have huge amounts of it,” Mintz said. “This is a major test for Canada. This is buying one of the major Canadian oil and gas companies.”
The deal will no doubt throw all the premiers into a tizzy as they meet this week in Halifax to discuss how to craft a national energy policy.
Alberta Premier Alison Redford is trying to forge a consensus around how provincial governments should foster exploitation of natural resources and at the same time protect the environment.
She seems to be slowly gaining support for her idea, but markets are clearly moving much faster than the politicians.
“Provinces should definitely talk and come to some sort of understanding,” said Mintz. But he warned that they shouldn’t let the concept of a giant pan-Canadian deal bog them down.
“If you try to take a pan-Canadian approach, it just goes on and on and on” since the provinces have vastly different self-interests, he said.