Copyright 2010, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Competition, Antitrust & Foreign Investment, November 2010
New guidance is expected from the federal government following BHP Billiton's withdrawal on November 14, 2010 of its offer to acquire Potash Corporation of Saskatchewan Inc.
The offer, which was announced on August 18, 2010, was conditional upon, among other things, receipt of regulatory approval under the Investment Canada Act. BHP Billiton received an interim decision from the Minister of Industry on November 3, 2010, indicating that, at that time, the Minister was not satisfied that the proposed transaction was "likely to be of net benefit to Canada" – the statutory test for approval under the Investment Canada Act.
The Minister announced on November 14 that he would not be making a final decision on the matter in light of BHP Billiton's withdrawal of its offer. Canadian government officials have stated that guidance to investors and the business community to clarify the government's position on foreign investment reviews going forward will be provided shortly. A review of the Investment Canada Act is also likely in the near future.
The case sparked an extraordinary media frenzy in Canada and elsewhere, including ongoing comments and speculation from political pundits and virtually all of Canada's newspapers, as well as international media.
According to the BHP Billiton press release announcing the withdrawal of the offer, BHP Billiton offered unparalleled undertakings to the Minister in terms of their scope, substance and duration. The undertakings went beyond those reported in past transactions that were approved under the Investment Canada Act.
The proposed commitments offered by BHP Billiton included undertakings that would have, among other things:
- increased overall employment at the combined Canadian potash businesses by 15%;
- guaranteed investment;
- created a Mining Centre of Excellence at the University of Saskatchewan;
- established the company's global potash headquarters in Saskatoon, Saskatchewan; and
- resulted in BHP Billiton applying for a listing on the Toronto Stock Exchange.
To view a more detailed description of the commitments offered by BHP Billiton, click here.
While the Investment Canada Act gave BHP Billiton the right to make additional representations and submit undertakings within 30 days from the date of the Minister's notice, BHP Billiton determined that the condition of its offer relating to receipt of a net benefit determination by the Minister under the Investment Canada Act could not be satisfied. Accordingly, the offer was withdrawn.
This was the first time a proposed transaction in the Canadian resource sector has been rejected, albeit on an interim basis. In our experience, no Investment Canada review has entailed the significant level of substantive and process-related commitments as were included in the undertakings proposed by BHP Billiton. In effect, the decision deviates significantly from the framework applied in past transactions under the Investment Canada Act.
The manner in which the Canadian government exercised its discretion in this case, despite the level of undertakings that were given, is raising questions as to whether Canada has taken a turn inward in its approach to foreign investment review of significant matters – a view being expressed in the media and in various circles globally. In this regard, Canadian government officials have noted that increased guidance will soon be forthcoming for future foreign investments, while maintaining that Canada is a free-trading economy. The government has also indicated that it will ask the Houseof Commons Standing Committee on Industry, Science and Technology to review the Investment Canada Act and make recommendations for potential amendments to the law. For example, a number of commentators have suggested that the process for negotiating undertakings should be more transparent, and that undertakings agreed to by the Minister of Industry in order to secure approval should be made public.
Given our experience in this case – Blakes acted for BHP Billiton in respect of the case – and our experience in hundreds of previous matters under the Investment Canada Act, our sense of the process surrounding future foreign direct investments is that most transactions will proceed as they have in the past, and that transactions which are susceptible to being labelled as involving "strategic resources" or national security, that involve SOEs and SWFs, that are particularly large, and which are unsolicited, will continue to be among the most challenging transactions. What remains to be seen is the nature of the guidance the current government will provide and any proposed amendments to the law, as it now seeks to reassure the world of its open and free-trading stance.
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