Doesn't quack

Worry over state-owned acquirers may be overdone

People like Canadian Prime Minister Stephen Harper may be worrying too much about foreign state-controlled companies buying homegrown companies. Harper, who is mulling CNOOC’s $15.1 billion bid for oil company Nexen, is sceptical. The fear is the motives of such companies are more than commercial. But evidence from a recent study suggests that if state buyers have a hidden agenda, they aren’t paying for it.

Two deals currently being considered in Ottawa involve conspicuously large takeover premiums. CNOOC offered 61 per cent above the market price of shares for Nexen, hardly one of North America’s best-run oil companies. And Malaysia’s state-controlled Petronas is willing to hand over 77 per cent more than the undisturbed share price for Canada’s Progress Energy. Critics suggest this generosity can only be explained by a desire to control the nation’s strategic resources.

But in a broader context, these look more like outliers. For a start, there are examples of high-priced deals not involving government-controlled companies – like the 45 per cent premium Apache offered for Mariner Energy in 2010. And across a bigger sample of energy transactions, there’s no sign of what might be called a geopolitical premium. An analysis of 180 foreign purchases of oil and gas reserves conducted by George Washington University showed the price of companies selling assets — or themselves — rising by an average of four per cent the day after transactions were announced. The boost was the same whether the buyer was state-owned or held by private-sector investors.

Foreign governments might be interested in acquiring energy know-how their top companies can apply at home, but that’s more a commercial consideration than anything more sinister. In any event, buying a company that has rights over a foreign nation’s resources is no guarantee of controlling them. After all, a country like Canada would still have the option to prohibit exports.

Some degree of extra scrutiny may be warranted when state-owned firms come knocking. But it looks as though politicians needn’t let paranoia trump the benefits of foreign investment.