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Cnooc, one of China’s three major oil companies, struck a deal yesterday to buy Canadian oil and gas producer Nexen for $15.1 billion in the biggest-ever cross-border deal from Asia ex-Japan.
The Chinese company will pay $27.50 a share in cash for all of the outstanding common shares of Nexen, which is based in Calgary, Alberta. The transaction will be funded by Cnooc’s existing cash resources and external financing.
The purchase price represents a premium of 61% to the closing price of Nexen’s common shares on the New York Stock Exchange on Friday, and a premium of 66% to Nexen’s average share price during the previous 20 days.
Nexen’s current debt of approximately $4.3 billion will remain outstanding. The firm value of the transaction is about $17.9 billion.
“The transaction is a reflection of our disciplined M&A strategy, which is focused on resources, risk and return,” said Li Fanrong, Cnooc’s chief executive, in a statement.
“Cnooc is a very experienced M&A player,” said a person close to the deal, which has been in the works since just after Chinese New Year. “This was well thought out — they strategized upfront how to address regulatory issues, how they can add value to Nexen, and how to deal with staff retention post-acquisition. It’s clear that with more experienced Chinese players, and definitely with Cnooc, there is much more of an understanding that it’s a two-way street when it comes to delivering benefits from a deal.”
For a start, Cnooc struck a deal with a partner it knows well and with which it already has existing joint ventures in Canadian oil sands (Longlake) and offshore in the Gulf of Mexico. Senior management apparently know each other well — and knew they could work together.
“The acquisition reflects our strong belief in Nexen’s rich and diverse portfolio of assets and world-class management and employees,” Wang Yilin, chairman of Cnooc said in a statement. “This is an exciting opportunity for us to build on our existing joint venture relationship with Nexen in Canada, and to acquire a leading international platform in the process. We strongly believe that this acquisition will create long-term value for Cnooc’s shareholders.”
Cnooc promised to retain Nexen’s current management team and employees, and said it planned to list its shares on the Toronto Stock Exchange as part of its long-term strategy. In addition, following completion of the transaction, Cnooc said it plans to establish Calgary as the head office of its North and Central American operations, and will also include $8 billion of its existing North American assets to be placed under Nexen management. This head office will be responsible for operating and growing Nexen’s assets in not just North and South America, but also Europe and West Africa, as well as Cnooc’s portfolio in Canada, the US and Central America.
In short, Cnooc recognises it needs to show commitment to Canada, where it already has been a significant investor since 2005, with total capital invested of C$2.8 billion.
In exchange, Cnooc gets operations in markets it wants to be in, both geographically and strategically. Nexen operates in western Canada, as well as the UK’s North Sea, the Gulf of Mexico and offshore Nigeria, and in several other territories. It is focused not just on conventional oil and gas, where Cnooc is already experienced, but also in oil sands and shale gas, which are more difficult to extract profitably.
“As the industry moves more into unconventional oils and North America, Cnooc has to stay apace,” said a source.
As for Nexen, Barry Jackson, chairman of the board of Nexen, said: “This transaction delivers significant and immediate value to Nexen shareholders. The Nexen board is unanimous in its view that the transaction is in the best interest of Nexen and recommends shareholders vote in favour of the transaction.”
The financial advisers for Cnooc are BMO Capital Markets and Citi. Legal advisers are Stikeman Elliott and Davis Polk & Wardwell.
Nexen’s financial advisers are Goldman Sachs and RBC Capital Markets and its legal advisers are Blake Cassels & Graydon and Paul, Weiss, Rifkind, Wharton & Garrison. Legal advisers to the Nexen board are Richard A Shaw Professional Corp and Burnet, Duckworth & Palmer.
