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The Canadian government has blocked a $5.2 billion bid to acquire Calgary-based Progress Energy Resources by Malaysian state-owned oil firm Petroliam Nasional Bhd., better known as Petronas, saying the proposed investment does not provide a "net benefit" to the country.
"I can confirm that I have sent a notice letter to Petronas indicating that I am not satisfied that the proposed investment is likely to be of net benefit to Canada," said Canadian Minister of Industry Christian Paradis, in an October 19 statement. "I came to this decision after a careful and thorough review of the proposed transaction."
Reviews under the Investment Canada Act, which authorizes the government to block foreign investment deemed to not be in the national interest, are confidential and Paradis offered no further comment. Petronas now has up to 30 days to make further submissions to the ministry.
The rejection cast an immediate shadow over another cross-border deal now facing Investment Canada review -- China National Offshore Oil Corp. Ltd.'s $15.1 billion bid to buy Calgary-based oil exploration company Nexen Inc. If successful, that deal would be the largest-ever overseas investment by a Chinese company.
Gordon Currie, a Calgary-based analyst interviewed by Bloomberg, called the decision on Petronas "shocking" and said it could have a "chilling effect" on foreign investment into Canada.
"It could be the death knell of Nexen if the grounds are around reciprocity and state-owned enterprises," Jack Mintz, director of the University of Calgary's School of Public Policy, told the news service. "Canada's foreign-investment rules remain vague and the government needs to send a clear signal on what's on and what's off in terms of foreign investment."
But Canadian international trade minister Edward Fast stressed in a separate Bloomberg interview that the decision on Petronas should not be seen as a precedent for the one on CNOOC, which would be considered on its own merits. A decision on the CNOOC-Nexen deal is due November 9.
Petronas was advised by a Norton Rose team led by Calgary partners Chrysten Perry and Kevin Johnson. The firm declined to comment on the failed bid. Progress Energy was advised by Calgary firm Burnet, Duckworth & Palmer partners John Cuthbertson and Jody Wivcharuk.
It is the second time in two years Canada has rejected a large foreign acquisition. In 2010, the government blocked BHP Billiton Ltd.'s $40 billion bid for Potash Corp. of Saskatchewan Inc.
Petronas' bid for Progress is its largest foreign acquisition to date, doubling its 2008 $2.5 billion acquisition of a 40 percent stake in Gladstone liquefied natural gas project in Australia. By acquiring Progress, Petronas would gain majority shares in the Montney shale gas area of British Columbia and full control of three other production basins.
Petronas bought a 50 percent stake in the Montney site for $1.1 billion last year. Toronto-based MacLeod Dixon, which merged into the Norton Rose Group earlier this year, advised Petronas on that deal.