The federal government’s decision to block the takeover of Potash Corp. POT-T has thrown Canada’s rules governing foreign takeovers into question, casting doubt on the prospect of future bids for many prominent Canadian companies.
Industry Minister Tony Clement said BHP BHP-N $38.6-billion (U.S.) bid for Potash Corp. did not meet the “net benefit” test under the Investment Canada Act, but the Australian mining giant has 30 days to try to change the federal government’s mind.
The federal government “must do the right thing when faced with difficult decisions,” Mr. Clement said.
“I believe that my decision today is the right decision in the interests of Canada and in the interests of Canadians and that is my bottom line.” BHP said it was “disappointed” with the ruling but stopped short of saying it will drop its bid.
Mr. Clement said that he made the decision on his own, adding that federal officials had reviewed BHP’s offer but made no recommendations on whether it met the “net benefit” test. He declined to provide further information on the specifics of his review.
But the historic move suddenly throws into question whether or not the government would allow a foreign acquirer to buy other large companies whose assets may be of strategic interest to the country, such as Suncor Energy Inc., natural gas producer Encana Corp. or Research In Motion Ltd. Such a policy would mark a dramatic shift in Ottawa’s attitude toward large deals since 2006-07, when it permitted foreign corporations to buy Inco Ltd., Falconbridge Ltd. and Alcan Inc.
Business leaders across the country had been eagerly awaiting Mr. Clement’s decision as rhetoric over BHP’s offer had soared. Several provincial premiers backed Saskatchewan Premier Brad Wall in calling for the government to block the deal, and some corporate executives worried about the impact of the takeover. A recent Globe and Mail poll of business executives found a nearly equal split between those who said they were concerned about it and those who weren't.
“I find myself very conflicted by this issue,” said Ian Telfer, chairman of Goldcorp Inc. “As a long time proponent of free markets it pains me to see governments interfere in the movement of capital. However, as a proud Canadian.... I agree with the decision and I am very pleased that Canadians will continue to have the opportunity to invest in these unique Canadian assets for decades to come.”
Mr. Clement's refusal has now raised questions about just what guides decisions about these takeovers, said Roger Gibbins, CEO of Canada West Foundation.
“In a sense the whole bid [by BHP Billiton Ltd.] has elevated the discussion beyond the merits of a specific proposal and into a kind of broader discussion about the nature of the country,” Mr. Gibbins said. “The criteria that were used, the paper criteria, are not the ones brought into play. So that demands almost immediate effort to try to figure out what are the larger criteria that we are talking about?”
Under the current rules, Investment Canada reviews takeover bids above $299-million and assesses whether the deal is a “net benefit” to Canada. That assessment is done confidentially but it includes reviewing employment, technology development, productivity, competition and national policies.
Mr. Gibbins said Wednesday's decision went further and appears to bolster the role of provincial governments as well. “That's part of the strategic consequences that come out of this, that we've reached a point where Ottawa making these decision by itself doesn't make sense.”
Already, there are calls to change the way foreign bids are reviewed. The federal New Democrats have introduced a motion in Parliament that calls for a tighter definition of “net benefit”. The NDP motion calls for several key changes to the legislation, including mandatory public hearings and publication of all conditions attached to the approval of a takeover.
