The Saskatchewan government should scrutinize past corporate performance of any potential buyer of Potash Corp. before deciding whether to back a bid for the prized resource company, suggests a new report on the takeover impacts set for release Monday.
The Conference Board of Canada's much-anticipated study points to historical practices of companies and investors ranging from giant miner , which has made a hostile $38.6-billion (U.S.) bid for Potash Corp., as well as any potential competing offers from a Chinese state-owned company and/or investors such as pension funds. The report advises the government to consider everything - from ways operators manage their mines and work force in communities where they do business, to how China behaves when it invests in a resource it also consumes.
The think tank was hired by the province to lay out the pros and cons of a takeover of Saskatoon-based Potash Corp., one of Saskatchewan's largest taxpayers and the dominant producer in the powerful Canpotex marketing arm that sells potash produced in the province. The report doesn't advise the province on how to act, but makes conclusions about the economic impact under various bid scenarios.
"There are quite different impacts depending on who the acquirer is. … It really goes down to the behaviour of different acquirers," conference board chief economist Glen Hodgson said ahead of the release of the 50-plus page report prepared for the province.
" At some point, you have to make a call on behaviour. … Helping the Saskatchewan government think through the possible behaviour of an acquirer of this type, what they might do, what the implications are for jobs, for head office, for other benefits for the province, that was the mandate and that is what we did."
The ruling centre-right Saskatchewan Party under Premier Brad Wall will use the report's findings to determine whether to recommend a bid to Ottawa, which has the final say. Investment Canada is scheduled to rule Monday on whether BHP's bid is of "net benefit" to Canada, but the review is expected to be extended until at least early November.
Saskatchewan's leaders have been increasingly skeptical of BHP's bid. Despite promises of maintaining jobs and the company's global potash headquarters in the province, Mr. Wall said recently he's not yet convinced the deal is good for Saskatchewan, or Canada.
For instance, he said the government stands to lose up to $100-million a year in corporate income taxes if BHP writes off interest associated with its fully financed bid against income. On top of that, the province is also worried about a drop in lucrative potash royalties if BHP bows out of the Canpotex marketing arm as planned and operates its mines at full capacity, resulting in lower potash prices.
The province is also leery of a potential buyer from a state-owned company such as China, which has a motive of driving down potash prices to secure more supply for its growing population.
"There is not a more important issue our government will deal with," Mr. Wall said in a recent interview, citing not just provincial economic impacts, but global food security issues that have become a key theme in the Potash Corp. takeover battle.
Saskatchewan is home to about half of the world's known potash reserves and any decision the province makes on a takeover will have long-lasting global implications, Mr. Wall said.
In making its decision, the province will also have to balance its interests against its growing reputation of being an investment-friendly province.
"Saskatchewan has gone from a have-not province to a have province. They have money. All the more reason why they want to manage this right, not impair their image as an investment destination, but not leave any money on the table either," the conference board's Mr. Hodgson said.
Provincial officials have said they plan to study the report and will not make any conclusions on its contents until later this month.