Mercifully, the takeover bids for Baffinland Iron Ore Mines Corp. are not being subjected to politics and nationalist ideology, in contrast to the controversy over Potash Corp. of Saskatchewan Inc. and BHP Billiton.
In the Potash debate, claims were made that the fertilizer company was a "strategic" asset for Canada - an adjective that is absent in the Investment Canada Act, under which proposed foreign takeovers are reviewed.
What is at stake with Baffinland is an iron-ore deposit at Mary River, Nunavut, about 940 kilometres north of Iqaluit, which is believed to hold about 365 million tonnes of ore. The Arctic is certainly a sensitive region, over which Canada wants and needs to assert its sovereignty. In some sense, the iron-ore deposit might be called strategic.
A change of ownership at Mary River would not weaken Canada. Baffinland is a Canadian corporation, but its largest shareholder, with a 23-per-cent interest, is a U.S.-Australian company. One of the bidders, ArcelorMittal, has its head office in Luxembourg; the other, Nunavut Iron Acquisition Inc., is controlled by a U.S. private-equity firm.
One of the bids values Baffinland at $570-million, the other at $551-million. Fortunately, the relevant threshold for a review by Investment Canada is based on the target company's own books, not on the hopes of the would-be buyers. Baffinland's 2009 annual report puts its assets at only $258-million - beneath the threshold for investors from World Trade Organization member countries.
The large premiums, in any case, show that the bidders expect to add a lot of value to the iron-ore deposit, and to make a good return. If there is a deal, the buyer will want to develop the mine - and thereby contribute to the economy of Nunavut. To borrow the words of the Investment Canada Act, that will surely be a net benefit to Canada.
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