Progress Energy takeover stopped – strategic implications

The stoppage of the Progress Energy (TSX: PRQ) takeover (news article) is something significant – Canada is starting to become serious about protecting its energy resources.

Something has strategically shifted in terms of resources companies, and this will have implications domestically for investors of energy companies. The foreign takeover premiums that are embedded within various energy companies will drop and this will also likely have an effect on decreasing the demand on Canadian currency. This also has implications for the Nexen takeover – it is likely that Nexen will probably have to divest its share in Syncrude since China already has 9% of Syncrude and Nexen currently owns 7% of Syncrude.

Politically speaking, this is going to be a case of short term pain for long-term gain. I would guess that the concept is that the Canadian government believes that global trade might be impacted in the future, especially with respect to energy, and maintaining high levels of domestic energy reserves seems to be prudent. So if companies are going to get access to Canadian energy, it will have to be through domestic Canadian operations.

I’m guessing this is also a signal that taking a minority stake is the best route for foreign access to domestic energy reserves.

However, if you have shares in PRQ or NXY, the lesson here is simple: should have sold out instead of waiting for the merger to formally proceed.