Buyout Talk Swirls Around Canada's Talisman Energy

Monday, 10 Sep 2012 04:27 PM

 

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Talisman Energy Inc has replaced chief executive John Manzoni with a Canadian energy veteran after five years of asset sales and repositioning failed to lift its shares, putting the company at the top of many lists of potential takeover targets.

Talisman, which produces oil and gas in North America, the North Sea and Southeast Asia, named board member and former TransCanada Corp CEO Hal Kvisle to take the helm on Monday. Kvisle led TransCanada, the country's biggest pipeline company, from 2001 to 2010.

Talisman shares, which have long been among the cheapest in its peer group in relation to expected cash flow, jumped as much as 4.5 percent early Monday. The stock closed 1.6 percent higher at C$14.09 after it became apparent that a deal was not imminent.

The shares had been down 23 percent from September 2007, when Manzoni, a former executive at BP Plc, took over from the more outspoken Jim Buckee. The stock had climbed 21 percent since late June, however.

 

The move comes with speculation at a fever pitch over takeovers in the Canadian energy sector following a $15.1 billion bid by China's CNOOC Ltd for Nexen Inc. Like Talisman, Nexen had been criticized for frequent operating problems and missed production targets.

Talisman is most often mentioned as next to be in the sights of a Chinese or other Asian state oil company, though Kvisle stressed it is not positioning itself to be sold.

"I think it confirms that the company is up for sale," said Barry Schwartz, vice-president and portfolio manager at Baskin Financial Services, which holds Talisman stock. "They already have a JV with Sinopec, and they would be a logical buyer. Talisman has a number of non-North American assets."

The same day CNOOC announced its bid for Nexen, China's Sinopec bought a 49 percent stake in Talisman's North Sea assets.

Even so, Talisman's naming Kvisle as permanent CEO shows it wants to make the necessary fixes for the long term, CIBC World Markets analyst Andrew Potter said. Nexen had been operating under an interim chief in the six months before CNOOC floated its offer.

"Overall, we believe, regardless of whether TLM is open to a corporate sale, they will likely still first continue the short-term focus on rationalizing assets, which should be positive for the stock," Potter said in a note to clients.

"If this process does not yield significant value to shareholders, this could lead to the company pursuing more meaningful portfolio shifts or an outright sale."

Analysts and investors have said any bid is unlikely to come from a Chinese company while Ottawa conducts a politically tricky review of the Nexen deal, and even for a lengthy period following Canadian government approval, if it is granted.

Some members of Prime Minister Stephen Harper's cabinet are said to be uncomfortable with Chinese state companies scooping up large chunks of Canada's resources.

 

SPENDING TOO HIGH, CASH FLOW TOO LOW

Kvisle, 59, said the change at the top follows an eight-month review of strategy and operations by the board, and is not a response to takeover interest or pressure from shareholders.

Still, i nvestors can expect some big shifts in the coming months, including a push to wring more money out of Talisman's assets and reducing its emphasis on chasing expensive, long-term prospects, he said.

Talisman's exploration assets in Peru are one example of assets that may not fit the news trategy, he said.

" We have cash flow that is less than we'd like to see and we've got capital expenditure obligations that have been more, perhaps, than we'd like to see, and we've been concerned about those things," he said in an interview. "That's really the driver of this."

Manzoni, 52, had promised to set achievable production targets and meet them, while refocusing operations on shale gas in such red-hot regions as the Marcellus in the northern United States, Eagle Ford in Texas, and Montney in British Columbia.

He sold off conventional oil and gas assets in Canada and the North Sea to concentrate on the longer-term prospects.

Talisman had been pressured by decade-low North American natural gas prices and a troublesome offshore oil project in Norway called Yme, which is more than a year behind schedule due to squabbles with the platform's contractor.

In a statement, Talisman Chairman Chuck Williamson thanked Manzoni for refocusing the company on "some of the best shale plays in North America" and wished him well.

Stephen Jarislowsky, chief executive of fund management firm Jarislowsky Fraser Ltd, said he supported handing the reins to Kvisle, whom he called "a superb executive".

Jarislowsky said he would not be opposed to a sale, should a buyer surface. The firm is Talisman's largest investor with a 4.8 percent stake.

"We think, if they can get a good price, any time is good. If not, why not fix the company and get an even better price?" he said.

© 2014 Thomson/Reuters. All rights reserved.

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