China’s CNOOC Agrees to Buy Canada’s Nexen for $27.50 a share. What does Model Price say?

On July 23, 2012, China’s CNOOC agrees to buy Canada’s Nexen Inc. (NXY) for $27.50 a share.  Even though this deal is expected to take at least 9 months to approve, what does our model price chart have to say about the value of the transaction?

Here is our model price chart,

Nexen Inc. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of NXY – Canada subsequent to this post will be maintained on Facebook, here.

Some of my observations;

1.  Earnings estimates have been coming down for NXY since the end of March.  Tried to stabilize for the month of June, before going lower for the month of July.

2.  CNOOC is paying the model price for the month of June, before the recent downgrade in earnings.  With the amount of time required to negotiate this deal, I’m sure there were anxious moments around the pricing of the deal on the last downgrade in earnings in July.

3.  Even with reduced estimates, model price one year out is $26.83 roughly in line with the announced offering.

4.  CNOOC, I believe, is getting a good deal.  Obviously, this all depends on oil pricing in future years however CNOOC is not over paying for a quality asset.

5.  In general there seems to be a support bid, by the Chinese, for any nonperforming energy company in Canada.  (I’m thinking of Sinopec’s deal with Daylight Energy last October.)  These Chinese takeovers seems to make everyone happy, management, current shareholders, CNOOC and Sinopec (the buyers) and the Canadian Government (Happy to approve deals that make everyone happy!)  Anyone unhappy?

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