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“Harper haircut” looking more like a trim

The federal government's surprise decision to reject the Petronas takeover of Progress Energy has taken the wind out of a few natural gas companies, but they're all still standing

Oct 22, 2012

by Max Fawcett

It’s not quite Income Trusts 2.0, but the surprise decision by industry minister Christian Paradis to reject the proposed Petronas takeover of Progress Energy has hit most Alberta-based natural gas stocks. But the carnage, so far at least, isn’t nearly as bad as some were predicting over the weekend, when talk of a 30 per cent “Harper haircut” for Progress Energy (TSE:PRQ) shares circulated fairly widely among analysts and traders. Progress shares are down 12 per cent, while those of the companies most affected by the blocked deal – Nexen (TSE: NXY) and Celtic Exploration (TSE: CLT), which both have pending takeover deals on the table, and Painted Pony Petroleum (TSE:PPY), which has land directly adjacent to Progress – are all down less than 10 per cent. It’s not a great day for shareholders in those companies, to be sure, but not quite the bloodbath that some were predicting, either.

The real question for investors is why the government blocked the deal, and whether they intend to do it again going forward. And notwithstanding the curious decision by the government to release the decision just a few minutes before midnight on a Friday, there is a growing consensus that it may have been the right move. The Globe and Mail’s Michael Babad, for one, thinks that we ought to give the government a chance to explain itself. “It may seem like the Canadian government is sending a message to investors, both foreign and domestic, that they’re not keen on big mergers in industries where key resources are at play or where there are consumer concerns to consider,” he writes. “But that’s simplistic. And it’s wrong to suggest that the Conservatives are robbing shareholders of hefty takeover premiums without sound reasoning, or that foreign suitors need not apply.”

Indeed, as BNN’s Andrew McCreath said today on his morning TV spot, the decision to block the Petronas-Progress deal may actually increase the likelihood that the Nexen deal goes through, since it will almost certainly encourage CNOOC to put more concessions on the table – and they already had more on it than Petronas did to begin with.

It’s not all bad news for Progress shareholders, either. As Alberta Oil’s Jeff Lewis points out on the Energy Ink blog, there’s a good chance that another bidder – the one that forced Petronas to sweeten its offer to Progress shareholders in the first place – may materialize if Petronas is unable to meet the Government of Canada’s “net benefit” test.

Not surprisingly, all of this has shaken up the rankings of our stock picking contest. Here are the latest results. By way of comparison, over the same period the S&P TSX500 has declined by 0.17 per cent, so anybody who’s in positive territory is beating the index.



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