Federal Industry Minister Tony Clement has rejected BHP
Billiton's bid for Potash Corporation of Saskatchewan on the
basis that it does not meet the "net benefit to Canada"
test under the Investment Canada Act. This decision is
widely regarded as a political response to the intense public
relations campaign led by the Premier of Saskatchewan (the province
in which most of Potash Corporation's mines are located) that
has galvanized popular opposition to the deal over the past two
months. BHP Billiton has 30 days under the statute to make
additional representations and submissions to the Industry Minister
to prove net benefit.
This case is only the second rejection of a deal in the history
of the Investment Canada Act (outside of the cultural
sector). The first deal to be rejected was the 2008 proposed
acquisition by an American company, Alliant Techsytems, of the
geospatial business of MacDonald, Dettwiler and Associates Ltd. for
(broadly speaking) "national interest" reasons (among
other rationales reported in the media, the protection of Canadian
sovereignty in the Arctic) under the "net benefit"
The calculus as to what constitutes a "net benefit to
Canada" is an elastic one based generally on economic
considerations (such as the impact of the proposed investment on
employment, capital expenditures, head office location,
participation of Canadians in senior management) but also including
industrial and economic policy objectives of a province likely to
be significantly affected by the investment. As a result, the
Minister's decision under the Investment Canada Act
can readily be made for political reasons. While Industry Minister
Clement's announcement of his decision offered almost no
detail, it will be important to see how the Government
characterizes this decision to the international investor
community. The Government has been seen as a strong supporter of
foreign investment in the past and will no doubt try to distinguish
this acquisition from others, either on the basis that potash is of
such strategic importance to Canada (given Potash Corporation's
significant global share of this commodity) that it should be
protected from any foreign takeover or that BHP Billiton's
commitments to the Canadian Government are simply not sufficiently
positive to meet the "net benefit" test.
The next 30 days will not only give BHP Billiton the opportunity
to test the Government's rationale for rejection, but will also
no doubt give the Government more time to monitor the political
winds. Opposition to the deal has been unusually unified and
vociferous with other Premiers, including the Premier of Alberta
(which, along with Saskatchewan, is a stronghold for the governing
federal Conservative Party), some members of the business community
and federal opposition parties, condemning the deal.
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