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Nexen takeover described as 'mixed' blessing

Not needed but helpful: analyst

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THE net benefit of a $15.1-billion takeover of Nexen Inc. (TSX:NXY) by a Chinese company is "somewhat mixed" because the deal offers only limited direct financial benefits but may help trade relations, says the DBRS debt-rating agency.

A DBRS report released Wednesday says the deal is not financially necessary for Nexen, which is already a strong company with good access to capital markets, but an approval could bolster Canada's relationship with China and open up new markets.

James Jung, a senior vice-president at DBRS and lead analyst on the report, said the investment by the Chinese National Offshore Oil Company could be a catalyst for further investment in the sector.

"It will be positive in terms of the inflow of capital to speed up our oilsands development," Jung said, adding, "Having a Chinese company coming in will be good for getting access to Asia."

However, Jung noted more multinational companies looking to invest in the oilpatch carries risks and downsides and the Nexen deal, because of its size, is being watched carefully as a possible precedent.

"Our crystal ball is telling us that there will be other multinational companies and state-owned entities that could follow suit and acquire the major interests of other Canadian entities," he said.

And, he said, some deals haven't worked out as planned.

"Entities that have made acquisitions in Canada have failed to live up to their promises," he said.

Ottawa is reviewing the $15.1-billion takeover by CNOOC under the Investment Canada Act, which says large deals must be of "net benefit" to Canada.

The federal government essentially killed BHP-Billiton's hostile takeover bid for the Potash Corporation of Saskatchewan (TSX:POT) when it said the deal didn't meet that standard.

Nexen shareholders voted to approve the takeover last week. Both Nexen and CNOOC have been seeking to allay concerns over the deal and trumpet its potential benefits.

Nexen has said CNOOC will keep the Nexen name and expand the role of the company's Calgary headquarters to manage not just Nexen's assets, but also some $8 billion of the Chinese company's other assets in North and Central America.

Nexen interim chief executive Kevin Reinhart has also said if the deal is approved, CNOOC would seek a listing on the Toronto Stock Exchange and carry on Nexen's social responsibility programs in Canada and around the world.

CNOOC has offered $27.50 per share in cash, however, Nexen shares have traded short of that mark, suggesting some investors believe there is a chance the deal will not be approved.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition September 27, 2012 B5

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