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A train car waits in line at Potash Corp.'s Cory mine near Saskatoon. (DAVID STOBBE/REUTERS)
A train car waits in line at Potash Corp.'s Cory mine near Saskatoon. (DAVID STOBBE/REUTERS)

Block Potash Corp. takeover, Saskatchewan to tell Ottawa Add to ...

The government of Saskatchewan is set to reject the proposed $38.6-billion (U.S.) takeover of Potash Corp. of Saskatchewan Ltd. by Australia's BHP Billiton Ltd., and urge Ottawa to block the foreign takeover of one of Canada's last major mining companies.

Saskatchewan is refusing to back BHP after the world's largest miner declined to pledge a host of economic benefits wanted by the province, including a one-time special tax of more than $1-billion, plus hundreds of millions of dollars more in infrastructure funding, according to people familiar with the situation.

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The province is expected to issue its formal response to BHP's bid for Potash Corp. later this week. Unless the province and BHP reach a last-minute compromise over the province's demands for economic benefits, Saskatchewan will reject the bid and submit its recommendation to the federal government.

Saskatchewan doesn't have the power to kill the deal on its own, but its stand will help shape Ottawa's decision on the takeover, expected early next month. Investment Canada must determine the deal provides a "net benefit" to Canada in order to approve it.

At issue is Canada's policy on foreign takeovers in the key natural-resources industry, where global giants have gobbled up a string of major Canadian players in recent years and triggered worries about the hollowing out of Canada's corporate sector. Saskatchewan's vast supply of potash is seen by some as a particularly strategic resource since it's a relatively scarce commodity used to make crop nutrients that make the world's farms more productive and help meet growing demand for food.

Prime Minister Stephen Harper has said the federal agency will consult with the province in making its decision.

The Harper government is particularly disposed to listen to Saskatchewan Premier Brad Wall because his rapport with the Prime Minister is among the best of any provincial leader in Canada today.

Deputy Liberal Leader Ralph Goodale, the party's only MP from Saskatchewan, said if the government ignores the province's recommendation it does so "at their great peril."

"It would be really astounding if the government of Canada says, 'We don't care what Saskatchewan thinks,'" Mr. Goodale said. "How this one is handled is significant for policy beyond potash."

Andrew Mackenzie, head of industrial minerals at BHP, said the company is committed to working with the Canadian government.

"BHP Billiton is willing to commit substantial resources to a province and a country that it believes is a welcome place to invest," Mr. Mackenzie said in a statement released late Tuesday.

"We are ready to underline our commitment to Canada with substantial undertakings on jobs, taxes, investment and community spending that will create immediate benefits for the people of Saskatchewan and the nation more broadly."

Blocking the BHP takeover would be a major departure from the Conservative Prime Minister's avowed policy on foreign investment. Mr. Harper, whose government feels Canadian capital is complacent, has repeatedly trumpeted and campaigned on the virtues of opening up Canada to more outside investors, including the telecom industry.

"They [Mr. Wall and the Prime Minister]have a good relationship, but Harper wouldn't say well, 'Wall is against this, therefore I am, too,'" one senior Tory MP said.

While the Tories in 2008 blocked a U.S. company's bid to acquire the satellite and space technology division of MacDonald Detwiler and Associates, they have otherwise taken a relatively laissez-faire approach to foreign investment.

The Conservatives allowed bookseller Amazon.com to set up physical warehouse space in Canada and let London-based Rio Tinto buy Alcan Inc. of Montreal. They also let India's Essar Group to buy up Algoma Steel and U.S.-based Advanced Micro Devices to purchase ATI Technologies.

Some Conservative MPs feel potash is a strategic resource that must be kept in Canadian hands, but they can't see overwhelming opposition to a deal. "This, frankly, isn't a great commercial deal," the senior Tory MP said. "There's a lot of people who say, 'I'm not sure I'd stop this deal, but I am not sure I am a big fan of it.'

"Unless there's something else in the works [another deal] it's kind of hard to see Ottawa saying no. I think a lot of people in government would like to see Canadian champions, but there don't seem to be many Canadian players willing to step forward," the former official said.

Saskatchewan has been increasingly critical of BHP's bid, in particular after a Conference Board of Canada report it commissioned showed the province could lose at least $2-billion in lost tax and royalty revenues over the next 10 years.

The province said Tuesday that figure is now closer to $3-billion, including additional revenue BHP will write off in interest costs from money it borrows to finance the Potash Corp. takeover.

BHP has said all of those taxes would be made up, and more, down the road, but the province doesn't agree.

A government official said BHP would have to make up the millions lost "before we would even consider supporting the deal." The official also said BHP offered a $370-million, one-time payment into an infrastructure fund.

"This doesn't even come close to offsetting the province's revenue loss," the official said in an e-mail to The Globe and Mail. "The potash resource doesn't belong to any company. It belongs to the people of Saskatchewan. We will protect the economic and strategic interests of the people of Saskatchewan."

Follow us on Twitter: @BrendaBouw, @stevenchase

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