Shares in Nexen Inc. and Progress Energy Resources experienced wild stock price fluctuations Friday ahead of the federal government’s decision to allow the two Canadian companies to be acquired by foreign state-owned businesses.
Prime Minister Stephen Harper announced at 5:15 p.m. that the government would allow the $15.1-billion takeover of Nexen by China’s CNOOC Ltd. and the $6-billion takeover of Progress by Malaysia’s Petronas.
But the markets clearly weren’t confident the deals would clear, as evidenced by the market activity leading up to the closing bell.
Both stocks plummeted in the late afternoon – shares in Progress fell between 6 and 7 per cent before bouncing back, and Nexen was down as much as 15 per cent, before retracing at least half their fall amid sudden market fears that the Investment Canada process had affected the value of the deals.
Trading in Nexen shares was briefly halted for five minutes in Canada, but resumed again shortly thereafter as per the policy of the industry regulator.
According to Lucy Becker, vice-president of public affairs with the Investment Industry Regulatory Organization of Canada: “A single stock circuit breaker did trigger a five minute halt as per our policy and the stock has resumed trading.” Those circuit breakers are triggered when a stock moves more than 10 per cent in a five-minute period.
At the close of trading, Nexen was down 9 per cent from the day’s high to close at $23.38, less than the $27.50 per share CNOOC is offering.
However, in New York after-hours trading, the shares were rising.
Progress was down 7 per cent to close at $19.35, lower than the $22 Petronas bid.
Ms. Becker said that leading up to the decision it was too early to say whether anything was awry. “At this point it is premature to speculate on what caused the price drop,” she said by e-mail. “We normally do review unusual trading prior to any material news.”
“I have never seen this in my life,” one industry source said of the swinging stock prices, adding: “This is comical. Can you imagine how a U.S. investor looks at this? They will think we are Disneyland. Brutal.”
The decision on both takeovers came with new foreign-investment guidelines that signalled that Ottawa will not allow future oil sands acquisitions by foreign governments and their state-owned enterprises in all but extraordinary cases.
Ottawa has spent months drafting those new rules and deliberating the two takeovers in a lengthy review that, at one point, led to the rejection of the Progress deal before Petronas re-filed. Petronas first announced its takeover of Progress on June 28. The CNOOC-Nexen deal was announced July 23.