Petronas to Renew Canada-Blocked Bid for Progress

on Oct 29, 2012

The Malaysian state oil company Petronas has agreed to renew its bid for the Toronto-listed gas producer Progress Energy Resources (TSE:PRQ), Reuters reported on 29 October 2012. The Canadian government blocked Petronas’ bid earlier this month, giving the Malaysian company 30 days to amend its offer.

Petronas Agrees to Renew Progress Bid
Reuters quotes two Petronas sources familiar with the matter as saying that the company agreed to the extension and was eager to complete the acquisition. The sources added that the Petronas board had taken the decision at a regular monthly meeting, with the Malaysian oil producer studying additional steps so as to reassure the Canadian government that the Progress takeover would meet Canada’s requirement for bringing “net benefits” to the country. “Petronas will go all the way to secure this deal. It is important to Petronas that the deal is done,” one of the sources told Reuters.

Bloomberg recently quoted Fitch Ratings as saying that the Progress takeover would provide Petronas with an opportunity to enlarge its reserves, diversify its product range and potentially start exporting liquefied natural gas from North America to Asia.
Canada Rejects Previous Bid
Earlier in October, the Canadian government blocked Petronas’ C$5.17 billion (£3.22) bid for the Calgary-based Progress, with the industry minister Christian Paradis saying that it was unlikely to bring “net benefits” to the country. The government, however, gave Petronas 30 days to appeal or to provide additional concessions.

Bloomberg reports that under the Investment Canada Act, the government reviews all foreign takeovers valued at more than C$330 million (£206 million) so as to determine whether they are in the nation’s interest. Among the factors the Canadian government takes into consideration are the impact on economic activity and employment, the degree of Canadian participation in the business, as well as the impact on productivity and technology and the effect on competition.

Progress’ CEO Michael Culbert blamed a “communications breakdown” for Canada’s rejection of the deal, noting that he was optimistic that the deal could get back on track. As reported by Reuters, Petronas sources said that Canada did not want Progress to be delisted from the Toronto Stock Exchange, if the Petronas takeover was approved, due to accountability concerns.

Bloomberg in turn quoted Fitch Ratings as saying that among the possible reasons for the rejection was the desire of the Canadian government “to ensure that sufficient control and profits remain in Canada”.
The Nexen Case
Sources, however, told Reuters that the Canadian government wanted to approve the Petronas deal, but was concerned that it would tie its hands when reviewing the much larger C$15.1 billion (£9.4 billion) bid by China’s oil and gas company CNOOC Ltd (HKG:0883, NYSE:CEO) for the Calgary-based Nexen (TSE:NXY). The Petronas decision has caused concerns that the Nexen takeover will be rejected as well.

Bloomberg, however, recently quoted Canada’s international trade minister Ed Fast as saying that the Petronas decision was not a precedent for other rulings. “This decision does not set a precedent because every single application is considered on its own merits,” Mr Fast said. “Each application has its own specific circumstances that are being brought to bear.”