CALGARY, Alberta Nexen Inc NXY.TO should have an easy time getting its shareholders to approve the $15.1 billion takeover of the Canadian oil and gas producer by China's CNOOC Ltd (0883.HK).
The biggest risks to the deal come from politicians and bureaucrats in Canada and the United States as they agonize over how much of the continent's energy assets should be absorbed by a Chinese state-owned enterprise.
Nexen shareholders vote on CNOOC's $27.50-a-share offer at a meeting at a Calgary conference center on Thursday morning, and the transaction is expected to get their blessing easily.
"Unless anybody wants to give back 61 percent, I would think, yeah, the shareholders should be pretty happy with that premium," Morningstar analyst Robert Bellinski said.
Before CNOOC's offer, Nexen had been working to correct years of chronic underperformance with many of its assets, such as the Long Lake oil sands project in Alberta and Buzzard oil field in the North Sea. Before the July 23 announcement the shares sold for $17.06 on the New York Stock Exchange.
Since then, they have hovered well below the bid price on growing fear among investors that the government of Prime Minister Stephen Harper is becoming more uncomfortable with a state-controlled enterprise making such a big acquisition in Canada's energy sector, especially the Alberta oil sands.
The stock closed at $25.32 in New York on Wednesday, 8 percent below the bid. In Toronto, Nexen closed down 8 Canadian cents at C$24.67.
"I don't anticipate any hurdles from the shareholders, and if there were I don't they are thinking through the situation very thoroughly," said Lanny Pendill, analyst at Edward Jones. "But do think there are rising concerns as to whether or not this gets past the Canadian government."
He has recommended investors sell their shares to protect their gains.
Harper and his top ministers have stressed that Canada is open for business as the industry seeks C$650 billion ($666 billion) of investment for new energy projects over the next decade. They have actively courted China and other Asian countries.
Still, some of Harper's own Conservative members of parliament have expressed concern publicly over the deal, despite the majority of Nexen's assets being located outside of Canada and CNOOC's pledges to maintain all the staff and make Calgary the headquarters of its Western Hemisphere operations.
In late August, the Industry ministry began a review to determine if the takeover has a "net benefit" to Canada. It has an initial 45-day period but it can be extended for 30 more.
This week, Ted Menzies, the junior finance minister, said his Alberta constituents were split over the deal, with many voicing fear about the resource sector and foreign ownership.
Another Alberta MP, Rob Anders, was more blunt: "I'm never a fan of state ownership of resources, particularly in China's case, because I don't believe it's a benevolent state."
Natural Resources Minister Joe Oliver declined to discuss the divergence of opinions within the government, but in an interview, he pointed out officials will issue a framework for future transactions.
"There'll be, therefore, an understanding of what the government's policy will be going forward," Oliver said.
Bellinski said the sale of Nexen, as opposed to a company seen more as a pillar of Canadian industry, should ease fears over a foreign state's control.
"This is a company that, at best, is a marginal producer in terms of economics. They're not the greatest, they're not the biggest. They do have a sizeable asset portfolio but a lot of it isn't in Canada," he said. "And from CNOOC's perspective they're paying a tremendous amount in terms of premium from what it sold for the day before."
The other wild card is Washington's reaction, as Nexen has sizeable exploration and production operations in the Gulf of Mexico. CNOOC has asked the Committee on Foreign Investment in the United States, a panel chaired by Treasury Secretary Timothy Geithner, to review its deal for any national security concerns.
A handful of lawmakers have urged the panel to tie its decision to resolution of such issues as China's foreign investment policies and the payment of energy royalties. ($1=$0.98 Canadian)
(Editing by David Gregorio)