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How low can Progress Energy Resources Corp. stock go?

Investors spent the weekend trying to predict where it will drop to on Monday morning after Ottawa stomped on the $6-billion proposed takeover of Progress by Malaysia's state-owned company Petronas late on Friday night.

While some say there will be up to a 30 per cent price drop and overall "carnage" at the opening bell (that's what Eric Nuttall, portfolio manager for the Sprott Energy Fund, told reporter Carrie Tait over the weekend), not everyone thinks it will get so bad. There's a lot of support around $19, judging from what analysts and investors are saying. That's about 12 per cent down from Friday's close of $21.65.

What will support the stock? An expectation that Petronas may yet get a deal done that satisfies the Canadian government, and hopes that even if it does not, another buyer will swoop in.

The drop will depend on the risk tolerance of arbitrage investors who bet on takeovers. They are estimated to own better than 50 per cent of Progress at this point.

Ronald Mayers, senior vice president at Laurentian Bank Securities, says that investors should already be able to see the bottom. "There were other buyers … remember, there's a floor on this thing," he said. Other industry watchers are also predicting a floor price has been set. "Progress already had other bidders interested earlier this year," Mr. Mayers explained.

He's talking about the way Petronas had to sweeten its initial offer of $20.45 per share to $22 in July–likely after a competing bid was made for Progress. At the time, some industry watchers murmured that the third player was Exxon, although a bidder's identity was never made clear. The thinking was that if Exxon could scoop up Progress as well as Celtic Exploration Ltd.– for which it had just made a bid – it would elevate the company's status as a natural gas and LNG dynamo.

With those thoughts in investors' minds, Mr. Mayers said that while "Progress' stock is for sure going to sell off, because it was trading pretty tight," the result could create a good opportunity for investors. "The stock could go back to trading around $19 or $20 level, and that could be a buying opportunity." he said "The midnight decision indicates to me [the government] only needs a little more time."

Having the weekend to calm down and sift through the "enormous flow of information" from the government and company management should also help, he noted.

Scotia Capital analyst Catharine Sterritt, who advises hedge funds and other large investors, said in a note that there is a 65 per cent chance that Progress is still bought. There's a 55 per cent chance the acquirer is Petronas at $22 a share, and a 10 per cent chance that the buyer is someone else at $20. Blending all the risks together, she expects the stock to trade down to $19. She said there could be "further near-term weakness on trading dynamics" but she would recommend buying Progress at "$17 or better."

Andrew Potter, an analyst at CIBC World Markets made a similar prediction in a research note on Sunday night. He reduced his price target from $22 to $19 and attached "a 50 per cent chance a multinational oil company comes in as a bidder if the Petronas deal fails."

Mr. Mayers, who does not have a stake in Progress, is watching for indicators of what kind of foreign investment guideline the government might be creating as the deadline for a decision on the CNOOC and Nexen deal draws closer. Nexen shares are also expected to get squeezed on Monday.

Mr. Mayers doesn't think the government would impose an outright ban on state-owned enterprises buying up Canadian companies, but he does think there are going to be some restrictions when the government develops its rule book.

"This is far from a done deal, and we won't really know the long-term market impact until we see how this all plays out," he said.

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