This article highlights significant developments in foreign
investment review in Canada over the past year.
Post Potash Anxiety Lifts in 2012?
In the immediate aftermath of the Canadian Government's
rejection of BHP Billiton's bid for Potash Corporation of
Saskatchewan, foreign investors questioned whether there would be a
sea‐change in Canada's previous openness to foreign
investment. While the failed bid by the LSE for the TMX removed the
possibility of another potential rejection, foreign investors,
including SOEs, have not been dissuaded from investing in Canada.
Despite this, a run at Canadian icons such as Research In Motion
could again thrust into the public arena questions of foreign
ownership of "national champions" or in
"strategic" sectors. As a result, potential acquirors of
such targets will need to develop strategies at an early stage to
address government and public relations in order to
pre‐empt, or at least mitigate, any public backlash.
Chinese SOE Investments Approved
The Canadian Government approved a number of
state‐owned investments in 2011, including Sinopec's
proposed acquisition of Daylight Energy, a Canadian oil and gas
company, and CNOOC's acquisition of oil sands company, OPTI
Canada. CNOOC acquired OPTI's 35 percent working interest in
Long Lake and three other project areas located in the Athabasca
region of northeastern Alberta. Both investments would have been
subject to the Government's guidelines on state‐owned
investors which consider the SOE's corporate governance and
commercial orientation in assessing whether the transaction would
be of "net benefit" to Canada.
Enforcement of Investment Canada Undertakings
In 2010 the Canadian Government sued US Steel for alleged
non‐compliance with its employment and production
undertakings. This represented the first time an investor has been
taken to court over a failure to comply with undertakings. In
December 2011 US Steel settled the dispute with the Canadian
Government, committing to make additional capital investments in
its Canadian facilities and to operate certain Canadian plants
The US Steel case underscores both that the Canadian Government
will enforce undertakings in appropriate circumstances (although
variations are still possible) and that when formulating 3 or 5
year commitments in relation to an acquisition, foreign investors
must carefully consider their ability to meet such undertakings in
light of the vagaries of economic conditions. Investors should also
proactively manage public and government relations when compliance
with undertakings proves difficult.
Review of Investment Canada Act
After its rejection of BHP Billiton's bid for Potash
Corporation of Saskatchewan, the Canadian Government indicated its
openness to review the Investment Canada Act. In the
winter of 2011, the Parliamentary Standing Committee on Industry,
Science and Technology invited foreign investment experts to speak
about their views on the statute and the review process. However,
there has been no public indication since the Government majority
win in the May 2011 federal election that the Government intends to
resume scrutiny of the foreign investment review process.
Review Threshold Increases
It is expected that the threshold for review for WTO investors
will be $330 million for the year 2012. The official threshold will
be published in the Canada Gazette in early 2012. However,
what may be of greater interest to foreign investors is whether the
Canadian Government finally implements regulations bringing into
force amendments made to the Investment Canada Act three
years ago. These amendments would raise the review threshold to
$600 million in the target's "enterprise value" for
the two years following implementation, to $800 million in the
subsequent two years and to $1 billion thereafter (indexed to
inflation), thereby reducing the number of investments that are
subject to review.
About Fraser Milner Casgrain LLP (FMC)
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