Takeover report spurs Talisman

Takeover report spurs Talisman
JEFFREY JONES
Reuters
May 26, 2008 at 4:41 PM EDT
CALGARY — Talisman Energy Inc. shares jumped more than 6 per cent Monday after a Hong Kong newspaper reported CNOOC Ltd, China's No. 3 oil company, was in talks to buy the Canadian firm or some of its assets.
Talisman, Canada's third largest independent oil explorer, jumped $1.51 to $24.70 on the Toronto Stock Exchange following the report in the South China Morning Post, quoting unnamed sources.
It comes a week after Calgary-based Talisman laid out details of an overhaul aimed at concentrating money and efforts on its highest-return assets around the world, a program that could mean up to $2-billion in asset sales.
A Talisman spokeswoman declined to comment on the CNOOC report.
Talisman Energy

Chief executive officer John Manzoni plans to sell operations in the Netherlands, Trinidad and Denmark that produce up to 40,000 barrels of oil equivalent a day.
Talisman, with a stock market value of more than $24-billion, will focus its efforts on assets in Southeast Asia, the North Sea and on unconventional oil and natural gas in North America, Mr. Manzoni said recently.
“I don't know of anything going on but I can't see any reason why CNOOC would not be interested in Talisman. Everybody should be interested in Talisman,” Raymond James analyst Stephen Calderwood said.
After Talisman released its strategic plan last week, Mr. Calderwood raised his six-to 12-month target price by 12 per cent to between $25 and $28 and kept his “outperform” rating on the stock.
He noted that Talisman's previous CEO, Jim Buckee, was resistant to calls from some investors to break the company into smaller firms along geographic lines, citing the prospect of a tax hit.
However, a breakup could still be possible through a cash bid at a premium to the current price, then a reorganization of the assets over a number of years, he wrote last week.
Some analysts also said it could be possible that CNOOC was in talks to acquire assets Talisman has earmarked for sale.
The goal of the company's reorganization is to rebuild credibility with investors who have been disappointed by a series of missed operational and financial targets.
Mr. Manzoni spent much of last week explaining the strategy to investors in New York, Toronto and Calgary.
A big question mark for any oil acquisition by a Chinese state-controlled company would be the reaction of Ottawa, which recently blocked a foreign takeover of MacDonald, Dettwiler and Associates Ltd.'s space robotic and satellite technology business on national security concerns.
In 2005, CNOOC's bid for another big North American oil company, Unocal, was thwarted when U.S. politicians scuttled the deal.
Talisman's Asian operations, seen as major drivers of the company's plans for steady production increases, are located in Indonesia, Malaysia and Vietnam.
In January, CNOOC and Talisman settled a long-running dispute over ownership of the Tangguh liquefied natural gas project in Indonesia, when the Chinese company sold Talisman a 3.06 per cent interest for $212.5-million.

If Ottawa does clears the way for takeovers and Talisman is still the cheapest big play in the oil patch, then all sorts of rivals will come calling.

Numbers support Talisman takeover, politics don't
Andrew Willis, today at 2:58 PM EDT

When it comes to a Talisman Energy takeover, the numbers make sense, but the politics don't.

Talisman stock is up Monday on a report out of Hong Kong that has the Canadian company in the sights of CNOOC Ltd., China's third largest oil company. Investment bankers who have worked in the past with CNOOC and other state-controlled Chinese companies say the timing is wrong.

All sorts of foreign companies and funds are interested in Canadian resource plays, but are waiting for greater clarity on federal rules.

Ottawa has appointed a panel to study state ownership of foreign acquirers - it's headed by former BCE chairman Lynton (Red) Wilson and includes energy mogul Murray Edwards - and the group isn't scheduled to table its thoughts until June.No company - state-owned or otherwise - wants to fire a takeover bid into an uncertain regulatory environment.

With a market capitalization of $25-billion, any bid for Talisman is going to attract regulatory scrutiny.

There's no sense in Calgary that Talisman is actively being stalked, though the company has certainly been approached in the past. However, the takeover talk isn't going to go away, as valuations support an acquisition. Talisman shares are changing hands at a substantial discount to rivals.Talisman's weak share prices reflects the fact that the company has disappointed investors by missing production forecasts.

Talisman is also seen as behind the times when it comes to strategy, only announcing this year that it is refocusing on unconventional North American natural gas plays.

Peers such as EnCana made this shift years ago.Talisman now has an enterprise value that is just 5 times its debt-adjusted cash flow - a standard industry measure - according to Blackmont Capital analyst Menno Hulshof. The same EV/DACF multiple at Canadian Natural Resources is 7.9 times, while EnCana is at 7.2 times.

On this and just about every other measure, Talisman is cheap.

The challenge facing Talisman management is to complete asset sales - where CNOOC or other state-owned players could be buyers - and turn around the company before the political winds shift.

If Ottawa does clears the way for takeovers and Talisman is still the cheapest big play in the oil patch, then all sorts of rivals will come calling.