Talisman shares soar on takeover rumours

Weak oil prices are raising the prospect of heightened takeover activity in the Canadian oilpatch, with Talisman Energy Inc.the latest subject of speculation.

The Financial Times says Repsol and Talisman are having talks in Calgary and aim to agree on a deal before Christmas. According to the report, the acquisition price would be between $6 and $8 per share, marking a rich premium over Talisman's $4.30 closing share price on Thursday.

Talisman, with operations spanning the world, has been a perennial subject of takeover speculation, but so far none of the rumours has borne out. It acknowledged this week that it had been approached by Repsol and others about unspecified deals but added it wouldn't comment on speculation and that there was no assurance that a transaction would happen.

However, Edward Jones analyst Lanny Pendill said a Talisman takeover might actually pan out this time because it's such a bargain.

Talisman a cheaper target

As of Thursday's close, Talisman's shares were down by about two-thirds since mid-summer.

"I would say the chances now are better now than they ever have been simply because the market cap of the company has gotten so low," Pendill said.

While Talisman's North American shale and Southeast Asian operations might be enticing to a potential buyer, its offshore assets in the North Sea have been prone to unplanned outages and have struggled to meet output targets.

"Obviously the North Sea assets are the Achilles heel here and that could be a stumbling block, but that may have been more of an issue when the stock was at $10-$11," said Pendill.

"Now that the stock is trading at $4, I think a lot of companies out there might be more willing to deal with the North Sea for a short-term period of time because they're getting the rest of the assets potentially at a bargain price."

Oil dropped below US$58 a barrel on Friday, continuing its more than 40 per cent slide since the summer.

Pendill predicts more merger and acquisition activity across the oilpatch as companies come under pressure.

"I think you're definitely going to see it among the smaller more junior type of names that are more highly levered and may not have many options or flexibility," he said.

"So we view those as forced sellers and when you see a big downturn like you're seeing now, that's when you can expect the consolidation to pick up."