China’s state-controlled companies sure know how to make their energy takeovers look compelling.
When Sinopec announced its plan to buy Daylight Energy Ltd. last fall, the Chinese firm offered a whopping 120 per cent premium to the previous day’s closing price. On Monday, CNOOC Ltd. offered Nexen Inc. shareholders a 61 per cent premium over Friday’s closing price.
But look a little bit deeper, and the numbers aren’t as sexy.
In Daylight’s case, the company’s share price fell off a cliff just before the deal was inked. Had you looked back two months from the announcement date, the deal premium was only 44 per cent above the 60-day weighted average share price. (Though, 44 per cent is still juicy.)
Nexen’s share premium isn’t so vastly different because the company’s stock has been depressed for much longer. In fact, the premium over Nexen’s 20-day weighted average share price is actually a bit higher, at 66 per cent.
However, if you look at what CNOOC paid per flowing barrel of energy, it isn’t much different from Nexen’s value last year. In 2011, the company was valued at about $87,000 per barrel of oil equivalent a day. The takeover comes in just below that, based on second quarter production, at around $84,000.
This isn’t to say that shareholders didn’t get great deals. Everything in finance is relative and the entire energy industry has taken a beating – so the Nexen premium, for instance, is enticing.
But keep in mind that the last three major Chinese bids – for Opti, Daylight and Nexen – were all for companies either in major distress, or had been sputtering for some time. In most cases, they lacked the development funds needed to produce the energy they’d secured in the ground, and for that investors had punished them.
Because China has such deep pockets and can afford these development costs in the long run, the prices paid aren’t as sweet once the vast reserves are taken into account.
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