After Daylight acquisition, is Talisman a takeover target?

China's state-owned companies eye slumping energy stocks

By Jeff Lewis

October 12, 2011

The blockbuster purchase by China Petroleum Corp. of Calgary-based Daylight Energy Ltd. for $2.2-billion or $10 and change per share raises the resulting practical question: What will the Chinese not buy?

The answers are varied. Bloomberg this morning has zeroed in on 19 potential takeover targets, among them Calgary-based Talisman Energy Inc. and Texas-based Newfield Exploration Co., who were valued at a discount to Daylight before the company agreed Oct. 9 to sell itself.

The agreement to buy Daylight for $10.08 per share, or twice the value of Daylight’s price of $4.59 per share last week, shows deep-pocketed Chinese buyers aren’t shy to fork over a premium for a major stake in a Canadian company. The reason, ARC Financial chief economist Peter Tertzakian writes, has as much to do with the belief that natural gas is fast becoming the global fuel of choice as it does with one of the biggest slumps in energy stocks since the credit crisis.

Sinopec and others abroad realize that Canada’s gas reserves are cheap today, and will be worth a lot more, probably more than double, in a few short years.

Here’s where things get interesting. With an equity value of $12.6-billion, Talisman, which last week cut its 2011 production target for the second time in as many months, is the largest among the 19 potential takeover targets identified by Bloomberg. Last quarter its value fell 35 per cent. The drop meant the company was valued at 3.6 times earnings before interest, taxes, depreciation and amortization, according to Bloomberg. Before it was snapped up, Daylight was worth 5.6 times Ebitda.

Is it speculation? Sure, but expect more jockeying so long as the ongoing slump in energy stocks continues.