China’s $15.1 billion bid to acquire Canada’s Nexen oil company threatens to turn China into a owner rather just a major buyer of Canadian oil, and prompts a surge in nationalist rhetoric that is attempting, misguidedly, to bring up the question of sovereignty.
China knows that nationalism and ideology will play a major role in whether the Nexen purchase goes through. As such, China’s CNOOC is offering Canada a very attractive deal, to wit, a 61% all-cash premium for Nexen.
For the same reason, CNOOC is offering to establish a headquarters in Nexen’s administrative territory, Calgary, Alberta, as well as to retain the Nexen management, among other things designed to make the deal innocuous. CNOOC has also been treading slowly and cautiously, first testing the waters by purchasing Nexen oil sands.
It’s not the first time a Chinese acquisition has stirred up the nationalist sentiments in North America. In 2005, CNOOC bid to acquire California-based Unocal, causing a furor in Washington and talk about national security. The acquisition would have made sense for China, as Unocal’s resources are largely in Asia. But of course nationalism and ideology tend to trump common sense, so it was a no go for the “communists”. Instead, Chevron acquired Unocal.
But let’s not talk “sovereignty” here. A paltry 28% of Nexen’s assets are in Canada. Most of the company’s assets are in the North Sea, the West African coast and the Gulf of Mexico. Nexen is also a rather small player in Canada in comparison with other Canadian oil majors. And certainly if Canada is willing to sell it off, it can’t be such a significant player in the energy industry.