In last week’s article, The price China must pay to win Nexen, from the Globe and Mail, China’s CNOOC Ltd. pending acquisition of Canada’s Nexen Inc. was described as ambiguous and opaque. CNOOC’s takeover of Nexen’s oil-company is a negotiating $15.1 US-dollar transaction. Although Nexen poses little strategic value to Canada as it has been on the sale market for so long, the Canadian government is hesitating to allow too much foreign control of Canada’s natural resources. Canadian executives are concerned with the unclear guidelines regarding foreign takeovers and worry about working terms and protections. As part of the Canadian Investment Act, the takeover needs to pass the “net benefit” test, however the rules remain vaguely defined.
The pros of the takeover include bringing in more capital investments, chance of higher productivity, innovative technology and new management ideas. The cons involve allowing a state-owned company to acquire much control over Canada’s oil industry. Which factors will outweigh the other?