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Petronas resubmits – arbitrage opportunity awaits?

Also: interesting equity raises from Peyto and NuVista

Nov 21, 2012

by Max Fawcett

Last week in this space I talked about the potential for an arbitrage between the proposed takeover price of Nexen (TSE:NXY) and its (then) current share price. But the spread in shares of Progress Energy (TSE:PRQ) is just as juicy at almost 10 per cent, and based on Tuesday’s news that Petronas has resubmitted its bid to the Canadian government it might be an even better opportunity. The two parties have agreed to a December 30 deadline, with a further 30 day extension available if regulatory approvals are obtained. Will Petronas be the first international company to have a proposed deal rejected twice? It seems unlikely.

And speaking of good trades, there might not be a better one out there than selling shares of Peyto Exploration (TSE:PEY) in early November – and then buying them back at the end of the month. For the third year in a row, the gas-weighted player announced bought deal equity financing in November, issuing $100 million in new shares (because of an overallotment option, the final tally could reach $115 million) yesterday. In 2010 it raised $144 million through a November equity raise, while last year it brought in $115 million.

Despite the mildly dilutive issuance, Canaccord’s Steve Toth likes the stock and where it’s headed, giving it a $28 price target. Unlike some companies – Niko Resources, for example – Peyto always seems to raise its equity when its shares are trading at the top of their range, and its well-noted cost discipline and development properties make it one of the best ways to play an ongoing rebound in natural gas prices. As Toth says, Peyto is “THE stock for gas bulls. The stock offers significant leverage to gas prices; for every +/-US$1/Mcf change, we estimate its NAVPS changes by ~$7.50.”

NuVista Energy (TSE:NVA) also gave itself a bit of financial flexibility with an equity raise of its own, issuing 19 million shares at an average price of $4.90. The additional financial breathing room is good, given that the company’s leveraged balance sheet puts its ability to fully develop its properties into some question. But what’s interesting with this particular equity raise is the fact that a significant portion of it was placed with three major institutional players – Franklin Templeton Investments Corp. (3.5 million shares), the Ontario Teachers’ Pension Plan Board (3.44 million shares) and the Caisse de depot et placement du Quebec (6.12 million shares). With big players like that in their shareholder base (Franklin Templeton and the Ontario Teachers’ Pension Plan were already shareholders, and now control 18.4 per cent and 18.1 per cent of the company respectively) it’s safe to say the company won’t be sold for anything less than its full value.

 

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