Canada must send a signal to foreign bidders that it will review takeover deals on an "impartial" basis and will apply the same standards in every case involving a purchase of a Canadian company, Industry Minister Tony Clement said yesterday.
Mr. Clement made the comments as he announced that his government will review the $900-million purchase of Nortel Networks Corp.'s enterprise unit by U.S.-based telecom company Avaya Inc.
Mr. Clement said the Avaya deal will be reviewed under the Investment Canada Act only because the size of the purchase falls within federal guidelines for a review, and not because of political pressure to keep Nortel in Canadian hands.
While another deal by Sweden's Telefon AB LM Ericsson to buy Nortel's wireless division for $1.1-billion did not get reviewed earlier this summer, Mr. Clement said it was because the size of the transaction fell below the review threshold, which relies on book value rather than the purchase price. He said the $450-million book value of Nortel's enterprise unit, which makes routers and telecom hardware, is larger than the $312-million threshold in place this year for a takeover deal to face government review.
The Avaya deal will be reviewed under the Investment Canada Act criteria that measure whether the purchase by a foreign bidder provides a "net benefit" to Canada, the minister said. "We're doing so in a fair and impartial manner, because what foreign investors need are rules that can be applied fairly and evenly across the board," Mr. Clement said in a speech at the annual conference of the Investment Industry Association of Canada in Toronto.
The Avaya purchase has generated complaints because a rival bidder, Siemens Enterprise Communications, had offered to combine its German head office with Nortel's staff in the U.S. and create a new global headquarters in Toronto with $5-billion in annual revenue and thousands of employees. The Ontario government had pledged $75-million to back the Siemens proposal. Last week, Sandra Pupatello, Ontario's Minister of Economic Development and Trade, urged the federal government to review and potentially overturn the Avaya purchase on the grounds it may not provide a net benefit to Canada.
While New Jersey-based Avaya is expected to lay off a number of former Nortel employees, the firm is pledging to maintain Canadian operations at Nortel's research facilities outside Ottawa and in Belleville, Ont. "We expect to retain a very significant amount of Canadian staff to help grow our business and continue our position as an employer of choice," company spokesman Gerard Carney said.
Avaya has also set aside $15-million (U.S.) for retention bonus payments to ensure it can retain Nortel staff, he added.
Janet McFarland
Andrew Willis