Nexen shareholders overwhelmingly approve CNOOC deal

Kevin Reinhart, interim President and CEO of Nexen, addresses shareholders today during Nexen’s special meeting of shareholders in Calgary (REUTERS/Todd Korol)

Reuters has just reported that Nexen Inc shareholders overwhelmingly approved the oil producer’s takeover by China’s CNOOC Ltd this morning. The stock weakened as public opposition to a state-owned enterprise absorbing $15.1 billion of Canadian-owned assets appeared to grow.

“I think that’s healthy to have a good debate on whether this is in the best interest of Canada, so I’m not surprised we’re getting all of those different views coming out,” Kevin Reinhart, Nexen’s interim chief executive, said following the vote, according to Reuters.

Holders of Nexen’s common shares voted 99 per cent in favour of the deal, and preferred shareholders voted 87 per cent in favour.

According to a poll released today, nearly seven out of 10 Canadians oppose approval of the $15.1 billion bid by China’s CNOOC Ltd for Canada’s Nexen Inc.

A CNOOC spokesperson told Lexpert:

CNOOC Limited welcomes the results of the vote of Nexen Inc. shareholders on its offer to acquire all outstanding shares of the company.  The offer is a compelling one, and offers benefits for all Nexen’s stakeholders, including employees and communities.  CNOOC Limited will continue to pursue all regulatory approvals required to close the transaction.

As Lexpert reported in its latest issue, Canadian law firms advising on the deal are Stikeman Elliott LLP for CNOOC, with William Braithwaite, Chris Nixon and John Ciardullo leading the team; Blake, Cassels & Graydon LLP for Nexen; and Burnet, Duckworth & Palmer LLP and Richard A. Shaw Professional Corp. for Nexen’s board.

Lexpert asked Oliver Borgers, a partner with the law firm of McCarthy Tétrault LLP, his opinion on the deal.  Borgers believes that CNOOC will offer a robust set of undertakings to the Canadian government under the Investment Canada Act to allow the Minister of Industry to reach a net benefit conclusion and approve the transaction.

Will the government ask CNOOC for undertakings that eclipse anything that prior investors have given?  I suspect that the scope, scale and duration of the undertakings will be unprecedented, however I also expect that the range of undertakings will be reasonable under the circumstances and that an investor with a long term view, such as CNOOC, will be comfortable with the commitments that gets this deal over the goal line.  For these reasons, and the government’s growing relationship with China and its policy that welcomes foreign investment, I anticipate that the Nexen deal will be approved.

In February, before CNOOC’s bid for Nexen, Lexpert ran a feature on the challenges of advising foreign investors. Borgers spoke with Lexpert then about the significance of BHP Billiton’s failed takeover of Potash Corp (after the federal government issued a surprise interim decision that the deal was not of net benefit to Canada):

…is Potash chilling foreign investment into Canada? Borgers of McCarthys says he’s seen no evidence of that so far, although it’s still too early to know for sure.

But it’s not too early to determine the true takeaway from Potash. And it is this, he says: Lawyers advising foreign bidders must pay careful attention to government relations and not consider it as ancillary or in any way peripheral to structuring the deal itself.

“You just can’t take anything on a deal for granted,” says Borgers, who acted for Rio Tinto PLC in its $38.1-billion purchase of Alcan, Canada’s largest-ever foreign takeover. “You need to reach out to everyone, early on, understand the landscape and take it into account in every deal. Clients who don’t heed that advice may find themselves in difficult approval situations.”

He’s convinced the only way to navigate potentially tricky deals is to try to bring the public on side, a task that may lie as much with top-notch public-relations positioning as much as top-notch deal work. “Getting Main Street on side isn’t something lawyers need to do. We absolutely need the right government-relations and public-relations advisers. It’s not a question of whether you should hire them. You’ve got accept it as a given that everyone in these deals -including BHP – had such advisers. What matters is the ability of the PR firm to recognize issues and act on them early on.

“In many cases, that isn’t done and the deal still goes through. But I think what clients now have to realize is, not only do they engage these experts, but they actually have to listen to them and make sure they’re very proactive. We’ve been preaching the importance of maintaining strong government relations for years — and a number of our clients do exactly that.

“Because at the end of the day, the BHP-Potash transaction highlights how critical it is to persuade all stake holders of the merits of a transaction.”

CNOOC no doubt studied Potash’s failed bid carefully, and is hoping things don’t go the same way in its bid for Nexen.

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