The federal government is growing increasingly skeptical of BHP Billiton Ltd.'s hostile takeover of Saskatchewan's largest potash producer, as provincial leaders hammer away on the argument that the company is a key strategic player that should not be controlled by a foreign multinational.
While BHP continues to negotiate with Investment Canada, Industry Minister Tony Clement appears to be swayed by Premier Brad Wall's insistence that Potash Corp. of Saskatchewan Inc. has a dominant position in a critical commodity sector, and that no other country would allow such a business to be sold off to a foreign acquirer, sources close to the discussions said Wednesday.
"I think we're going to get screwed," said one source close to BHP, warning that a rejection of the takeover would be seen internationally as an unduly protectionist move by Canada.
BHP put out a statement early Thursday in response to the comment , saying it doesn't reflect its position.
"We have absolute confidence in the integrity of the Investment Canada process. We continue to have ongoing negotiations with the Investment Review Division, but we do not comment on these discussions in the media," said Andrew Mackenzie, head of BHP's base metals operations, which includes potash.
With the deadline for a decision a week away, BHP has not given up. The company is still in intensive discussions with Investment Canada officials and expects to provide a package of commitments that will demonstrably benefit the country. The undertakings - which BHP has said it will make public - include promises of investment and jobs, and structuring of the deal to limit the impact on provincial tax revenues.
Mr. Clement has refused to comment publicly on the takeover, except to note that it is being reviewed by Investment Canada officials and must pass the "net benefit" test if the government is to approve the deal.
But there are few specific criteria by which Ottawa assesses a foreign takeover, and the government could simply decide that the sale of Potash Corp. is not in the national interest, as it did in 2008 when rejecting the sale of a division of MacDonald Dettwiler and Associates Ltd. to a U.S. firm.
BHP officials fear that, rather than an outright rejection, Ottawa will make extravagant demands for concessions which would force the company to walk away from the bid. In such a strategy, the government could claim it was prepared to approve the foreign investment, but that BHP was unwilling to pay the price to meet the net benefit test.
Mr. Clement met this week with Saskatchewan Energy and Resources Minister Bill Boyd and Enterprise Minister Jeremy Harrison, who emphasized the province's opposition to handing over a long-term strategic resource to a foreign buyer. At the same time, the Industry Minister has met with Saskatchewan members of the Conservative caucus, who are fearful of a political backlash if Ottawa bucks the popular premier.
"Feelings are very strong in Saskatchewan," said one caucus member. "It's a very emotional issue." The Conservatives hold 13 of the 14 federal seats in Saskatchewan.
The minister has yet to see BHP's final package of undertakings because they are still being worked out with Investment Canada officials.
BHP is attempting to counter Mr. Wall's barrage of opposition by noting that Potash Corp. is already largely in foreign hands, with 51 per cent of shareholders outside of Canada and many of the senior management, including chief executive officer Bill Doyle, based in Chicago.
Its argument was buttressed last week when Prime Minister Stephen Harper declared in the House of Commons that Potash Corp. is an "American controlled" corporation, in an apparent effort to play down its national significance. BHP also notes that the company - which has wrapped itself in the Canadian flag - was until recently courting Chinese companies to finance a richer takeover offer to BHP Billiton's.
The company also believes it can meet the Investment Canada net benefit test with a series of concessions, including moving jobs in Chicago to Saskatchewan. BHP is also willing to make a long-term commitment to remain in Canpotex, the potash export marketing cartel that Saskatchewan believes is critical to maximizing its revenues from the resource.
The government is also aware a negative decision on the BHP-Potash deal would be viewed as protectionist in the global financial community, though that issue alone is unlikely to sway Mr. Clement or Mr. Harper.
"It would be unfortunate that Canada would turn into a protectionist economy, it's not really in their history," said David Simon, a portfolio manager with New York-based Twin Capital Management LLC, which owns Potash Corp. shares and is keen to profit from BHP's offer. "They've been a very fair and open place to do business and I'd hate to see that change."
Meantime, Saskatchewan continues its aggressive campaign against BHP's offer.
On Thursday, Mr. Wall is expected to put forward an emergency motion in the provincial legislature asking for the support from all parties of its position on the deal. The motion is said to be another way for the province to urge the federal government to reject the deal.
Saskatchewan also earmarked spending to help pay for a new national advertising campaign to help sell the province as a business-friendly jurisdiction, despite its decision to reject the BHP bid. The new national advertising initiative will "tell the Saskatchewan success story and attract investors, ex-patriots and skilled workers to the province," the government said on Wednesday as part of its throne speech to open a new parliamentary session.
The premier has also embarked on a national speaking tour to sell his position, and the province, including a speech scheduled for Toronto on Friday before the Economic Club of Canada.