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Canadian Government to Provide “Window” into Decision-Making After Blocking BHP’s Potash Bid

The Canadian Government is set to establish rules with respect to foreign investment within the month after it blocked BHP Billiton of Australia’s $39 billion hostile bid for Saskatchewan’s Potash Corporation, which would have been the biggest takeover this year, on the grounds that it would be bad for Canada.

According to industry Minister Tony Clement, guidelines will come in a statement “in the coming days,” but in the longer term the Canadian government will consider legislation to promote greater openness and transparency around foreign investment.

BHP withdrew the offer on Monday and announced that it has decided to instead spend the money by buying back its own shares and handing money back to its shareholders.  Whether that money would have been better spent in Canadian hands is anybody’s guess.

In withdrawing, CEO Marius Kloppers took the unusual step of outlining all the benefits he said the merger would have meant for all stakeholders, but renewed his company’s commitment to “develop a significant presence in the potash industry in Saskatchewan.”

Under the Canada Investment Act, the minister must assess the impact of any foreign investment on six factors including the impact on economic activity and jobs, innovation and Canada’s competitive stance in world markets.  Clement deemed the BHP bid failed three of the six requirements of “net benefit” as outlined in the act. Having decided that the takeover fails the test, Canada must now show that it welcomes foreign investment, and it must establish a clearer set of rules.

“What I’m proposing to do (is) to give the international investment community a little bit more of a window into how these factors are assessed to determine whether it it likely to be of net benefit to Canada,” Clement said on the sidelines of a conference on competitiveness in the Americas.

I look forward to better understanding Ottawa’s decision.  Since BHP had given undertakings to keep the headquarters in Saskatoon, I wonder whether the sale would have hurt Canada, or whether it would have been an incentive for further investment from foreign countries.  I worry that we have created a deterrent, instead.

Jonathan Kleiman, BA, JD
Toronto Business Lawyer