Ashley Redmond: As promised, Kirk is back with his stock column for morningstar.ca. This month he wrote about Nexen. Kirk, thanks so much for joining me.
Kirk Paulus: Glad to be here.
Redmond: So Kirk, why don't we start with Nexen's bid?
Paulus: Okay. Well, Nexen received an offer from a Chinese state-owned company called Chinese National Offshore Oil Corporation, that's a bit of a mouthful. CNOOC is a little bit of a shorter way of saying that. The offer was pretty beneficial and if you held Nexen shares prior to the offer, they bounced from around $17 up to the current price of $25.
A little bit off of the actual offer which was $27.50 a share, basically – that reflects the uncertainty that's currently involved with the shares – that you're actually getting approved by the government.
Right now it is kind of in limbo – while we wait for the review to be completed – initially it was supposed to be done by mid-November, but it's been pushed back another 30 days. So, I have no idea whether or not this is going to go through until December 10, when they rule on whether or not that benefit test is passed.
Redmond: Okay. For investors watching who hold Nexen, what should they do right now? Should they be concerned? Should they hold on to it?
Paulus: If I were investor and held Nexen right now, personally I would lock-in the gain. Basically if you had held it from $17 up until $25, that's a massive capital gain that you can just lock-in right now. For the difference of $2, not just to make light of that, that is a rather large amount of money, but the risk involved is probably just not worth it.
The downside risk, if this doesn't go through will be much more than the upside if it does. Unless you are very certain that this deal is going to happen, I would not; A, invest more money into the stock; and B, if I were holding it, I would probably sell it.
Redmond: Okay. So I guess you all be watching on December 10 to find out how the government rules.
Paulus: Yeah, for sure. I was reading some stuff today; basically they are trying to get some concessions from the Chinese state-owned Corp. basically for job promises, minimum levels of investment. The question is will they push too far on that kind of stuff, in order to play safe in public, and get everyone on board?
On the other hand they might end up pushing away, often they might just walk from it and then it's just not going to go through, and the share price is going to fall right back down. So, it's going to be interesting to see how it shakes out, but everyone is going to be watching the market across the whole patch and everywhere else, that's for sure.
Redmond: Yeah, definitely. All right, thanks so much Kirk.
Paulus: You're welcome.
Redmond: And remember to check back to morningstar.ca for Kirk's monthly stock column.