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Is Encana a sitting duck?

Will the combination of low share prices for Alberta energy companies and cheap capital lead to a takeover bonanza in 2012?

Dec 13, 2011

by Max Fawcett

That’s what some analysts seem to think. On Monday, Andrew Potter – the managing director of institutional equity research at CIBC World Markets Inc., not the journalist/academic and editor of the Ottawa Citizen – released a report that teased the idea that some of Alberta’s biggest oil and gas companies might be vulnerable to foreign takeover. The combination of low valuations – many of Alberta’s energy companies have equity valuations right now that are roughly where they were during the 2008-09 crisis – and the low cost of capital could spell trouble for companies like Encana, Talisman Energy and Nexen. “Should valuations remain depressed for any meaningful length of time, with cost of debt simultaneously remaining at such low levels, it would likely create a strong backdrop against which to finally see a broader-scale M&A scene emerge,” he writes. “We would not rule out a return of Big Cap M&A, given how absurdly low valuations have become.”<

Who might make such an acquisition? Sovereign wealth funds in the far east, of course. According to a story in the Financial Post, Potter expects Asian buyers to pursue both joint ventures and outright takeovers in 2012. It remains to be seen whether the federal government will have either the appetite or inclination to step in and block a major takeover the way it did when BHP Billiton Ltd. tried to acquire Potash Corp.

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