(By Balachander) CIBC World Markets Inc. reduced its rating on shares of Nexen Inc. (NYSE:NXY) to "Sector Underperformer" from "Sector Outperformer" after CNOOC Ltd. (NYSE:CEO) agreed to acquire the Canadian energy company for $27.50/share in an all-cash deal.
"We believe the odds of a competing bid are negligible, with no upside past the target/bid price; we would encourage investors to vote in favor of the deal," the brokerage wrote.
CIBC increased price target on the stock to $27.50 from $20 reflecting the offer price.
"CNOOC deal fits with existing overlap in Long Lake and the GoM JV; additionally, CNOOC has a strong desire for producing assets in places like Africa (NXY's Usan project)," the brokerage said. "A Total (NYSE:TOT) deal would offer overlap as well, but we do not believe it is likely that it would bid against CNOOC."
It is potentially the biggest NOC takeover of a Cdn company; the question now is whether or not regulators will allow it (i.e. is there a "net benefit" to Canada). NXY is a large Cdn company; however, only 28 percent of production and 11 percent of cash flows are from Canada, with balance in UK & Nigeria, CIBC wrote.
NXY stock rose 1.08 percent to trade at $26.15 on Tuesday on the NYSE. Over the past year, shares have been trading between $13.63 and $26.19.