What an insecure nation this can be. Canada is blessed with some of the biggest oil reserves this side of Saudi Arabia, a vast trove of metals and natural gas, a stable financial system and arguably the brightest economic outlook in the G8. We aren’t driving toward a debt cliff (United States, Japan), haven’t fallen back into recession (Britain), aren’t responsible for the chocolate mess called the euro zone (Italy, Germany, France) and aren’t governed by kleptomaniacs (Russia). We’ve even passed the Americans in average household wealth.
All of this should make us a confident lot. But then a foreigner comes along to buy one of our companies, and we get our Stanfield’s in a knot.
On July 22, Calgary’s Nexen Inc. was an oil and gas producer with a moribund stock price and a giant headache called the Long Lake oil sands project. On July 23, after the Chinese giant CNOOC Ltd. announced it would buy Nexen for about $15 billion, it was suddenly a national treasure. Among the more hysterical voices was the National Post’s Diane Francis, who invoked a dark vision of our future: “If the acquisition of Canada’s resource companies is not banned, then much of Calgary’s skyline will be snapped up by the world’s gigantic state-owned enterprises.”
Some of the anxiety is the residue of 2005-07, when Canada’s mining and steel industries were swept into a global wave of mergers and takeovers. The swift departure of names like Dofasco, Inco, Falconbridge, Alcan, Ipsco and Stelco from the Toronto bourse led to some seller’s remorse. The harshest criticism is that Canada has become a sellout nation, only too happy to gut domestic control of its economy for a few bucks.
It isn’t quite so.
Myth one: Recent foreign takeovers have made Canada a head-office weakling. Yes, some big ones are gone. The Alcan deal was a blow to Montreal, and the loss of Inco and Falconbridge changed the mining power structure in Toronto.
But does Canada really do so badly in generating—and keeping—big head offices? The country is home to 11 of Fortune’s Global 500 public companies, ranked by revenue. That’s in line with other developed economies of similar size, such as Italy and Australia, which have nine each. The magazine’s ranking is dominated by the U.S., China and Japan—the three largest economies—which collectively have 273 of the 500. Canada is ninth. We’re 10th in GDP. Globally, we punch our weight.
Myth two: We let foreigners snap up our best companies on the cheap. Five words for you: Alcan at $101 a share. Rio Tinto, which spent $38 billion to acquire the aluminum maker at the top of the market in 2007, has likely regretted it ever since. The huge debt it took on later forced it to go cap-in-hand to the Chinese for cash and made it a takeover target for BHP Billiton.
But Rio is far from the first foreign player to go waltzing down Bay Street, only to get its pockets picked. Look at how poorly Xstrata’s stock has done since it paid $20 billion for Falconbridge in 2006. And remember Intrawest Corp., that collection of resorts and properties that included Whistler? A U.S. private equity fund bought the company for $2.8 billion that same year, only to choke on the debt. Lenders threatened to foreclose, and Whistler Blackcomb Holdings is Canadian again, listed on the TSX, with a B.C. head office.
Myth three: Blocking foreign takeovers does no economic harm. In every country, some companies are off-limits. Brazil protects Vale SA, its mining champion. The U.S. would never let go of key defence companies. Sometimes, countries choose strange targets to protect: France’s so-called “Danone Law” declared the food manufacturer to be of national importance. One could hardly blame the Harper government for stopping BHP’s hostile bid for Potash Corp. of Saskatchewan Inc. two years ago.
Even so, takeover protectionism is not free, especially if it’s overused. Consider the bizarre case of Rona Inc., which received a $1.8-billion offer in July from Lowe’s Cos. Inc., a U.S. rival. Pas possible, said Quebec’s finance minister, who declared the retailer to be of such economic significance that the government would try to keep Lowe’s grubby American hands off it.
But Rona became a target for a reason. The company has managed its expansion badly and displayed little aptitude for using its capital wisely. If the province blocks a U.S. takeover, it will achieve a few things: entrenching a discredited management team, for one, and creating a permanent drag on Rona’s share price, along with that of any company that investors believe might be deemed “strategic” by the government. A lower stock price means a higher cost of capital, not to mention money out of the pockets of shareholders.
Canada doesn’t have to roll out the red carpet for every foreign acquirer who shows up with a chequebook. But let’s not pretend that our economy is so fragile that a few big deals are going to tear it apart.
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