In a surprising move Industry Minister Christian Paradis announced on Friday that  Petronas' $5.9 billion takeover bid for Progress Energy had been rejected under the Investment Canada Act.

In acordance with the provisions of the Act, the Minister stated that he was "not satisfied that the proposed investment is likely to be of net benefit to Canada."  As is customary, no further details were provided.

This is only the third proposed foreign takeover ever rejected under that Act (the government had previously rejected a U.S. takeover of McDonald Dettwiler, and an Australian takeover of Potash Corporation).  This is the first blocked takeover in the energy sector.

The timing of the announcement was also surprising, at three minutes before midnight on Friday.  The government's review period would have ended at midnight.

Petronas now has 30 days to make further submissions to the Minister, at which time the initial decision will either be confirmed or the acquisition approved.

Speculation is rampant about what this rejection means for CNOOC's proposed $15.1 billion takeover of Nexen.  In response to the "net benefit" test, CNOOC has made a number of public undertakings, including the retention of Nexen's head office in Calgary (overseeing all of the group's North American operations) and the listing of the new entity on the TSX.  It is not clear whether these undertakings will be sufficient to satisfy the "net benefit" test.  The government has been pressured from across the political spectrum to reject the CNOOC-Nexen transaction;  in contrast the Petronas-Progress transaction did not attract much attention.

The review period for the CNOOC-Nexen transaction ends on November 11.  The review period has already been extended once, and can be extended again with CNOOC's agreement.

Both the Petronas-Progress and CNOOC-Nexen transactions have been complicated by the acquirors' status as state owned enterprises in their home countries, leading to a more rigorous review (particularly regarding commercial orientation, corporate governance, national security concerns and reciprocity) by Investment Canada.