Canada: Asian Foreign Investment In Canada: Moving Forward

BHP Billiton's bid for Potash Corporation in November 2010 which was blocked by the Canadian government made financial headlines worldwide. This article argues that the current federal government remains keen to attract foreign investment to Canada, and reviews the BHP case for insights on how to avoid potential pitfalls and make the most of opportunities available to potential bidders of strategic assets in Canada going forward.

On November 3, 2010, the federal government of Canada refused to approve the proposed $38.6 billion hostile takeover by Australia's BHP Billiton ("BHP") of Potash Corporation of Saskatchewan ("Potash")1 pursuant to the Investment Canada Act (the "ICA"). It has been more than a year since this decision but some Asian investors still have concerns regarding Canada's overall position in foreign takeovers of significant Canadian assets, and whether Canada's natural resources and agricultural sectors should be considered off-limits.

Our position is that such cause for concerns are overstated. Since the introduction of the ICA in 1985, the government has approved approximately 18,700 transactions and blocked only two – the first was the proposed purchase of MacDonald, Dettwiler & Associates in 2008 by Alliant Techsystems Inc. ("ATK") of the US, and the second was the BHP bid for Potash.

Although both ATK and BHP occurred during the tenor of the current Conservative government, Canadian Prime Minister Stephen Harper during his recent visit to Beijing in February 2012 announced to a gathering of Chinese and Canadian business leaders (including Vice-Premier Li Keqiang) that Canada is open for business and its natural resources are for sale. In fact, a number of high profile Chinese state-owned investments were approved in 2011 under the ICA including Sinopec's proposed acquisition of Daylight Energy and CNOOC's acquisition of OPTI Canada.

Ostensibly, the purpose of the ICA is to encourage foreign investment in Canada while ensuring any such investments contribute positively to the economic growth of Canada and create opportunities for Canadians. Foreign investment proposals that are subject to ICA review2 will be tested based on the following factors to assess whether the transaction would be of "net benefit" to Canada:

  • Effect on the level and nature of economic activity in Canada;
  • Degree and significance of participation by Canadians in the Canadian business in particular, and in the relevant industry in Canada in general;
  • Effect on productivity, industrial efficiency, technological development, product innovation and product variety in Canada;
  • Effect on competition in the relevant industry in Canada;
  • Compatibility with Canadian industrial, economic and cultural policies, taking into account the policy objectives of affected provinces; and
  • Effect on Canada's ability to compete in world markets.

Some potential investors may be concerned that if BHP's substantial undertakings in the Potash case, including the creation of jobs and additional investments in Saskatchewan, were deemed inadequate, what would be required under the "net benefit" test in their particular circumstance? Although the federal government did not issue any formal reasons for their decision in asking BHP to reconsider their bid, there are some useful clues as to what foreign investors should focus on when seeking to acquire a Canadian business with potential ICA ramifications.

It is interesting to note that during the course of BHP's proposed bid for Potash, the Government of Saskatchewan was projecting some $2 billion in lost revenue over ten years. The Premier of Saskatchewan, Brad Wall was also displeased at the suggestion by the CEO of BHP that his company was not prepared to continue to support Canpotex. Canpotex is the marketing and logistics platform that exports potash throughout the world and is an important revenue source for the province, and therefore backed by the Saskatchewan government. In essence, BHP had failed to appreciate that potash is a strategically important resource and its acquisition by a private company (whether foreign or domestic) needed the concomitant assurance that it would be developed in a way that brought growth and returns to the province's tax base. Further, BHP had initially focused all of its attention on lobbying the federal government and only met with Premier Wall about a month after the takeover was made public. This was a fatal government relations miscalculation that contributed to the intense opposition from the provincial government. It would be fair to say that BHP had not been fully advised of a nuanced but significant shift in how the Harper Government interprets its constitutional relationship with the provinces, which tends to give more weight to the position a province takes on an area of shared constitutional jurisdiction3 than previous federal governments.

Despite BHP's failed bid, foreign investment remains in the best interest of Canada as an important player in the global economy. The fact that BHP could have re-submitted their proposal suggests that the government was willing to be convinced. The recent forays by Prime Minister Harper in pursuing trade discussions with foreign leaders, including his clear message to the incoming Chinese leadership during his last visit to Beijing that "Canada is open for business", strongly indicates the current federal government's focus to increase foreign investment and improve trade relations. However, the BHP case also shows that it may take more than pure economic incentives to obtain approval as it applies to a strategically important asset. Investors should take into consideration potential effects on the future competitiveness of Canada in world markets. A mechanism to keep not only jobs but also the development of core technology and R&D capabilities in Canada would be crucial.

To maximize the chances of a successful acquisition, foreign investors would benefit from good government relations and a thorough understanding of the Canadian regulatory regime. Investors would require sound legal advice as well as establishing effective channels of communication to progress the transaction with all levels of government. Effective advisors should be able to provide insights into the attitudes of key persons in the government decision-making process and identify, early on, issues that matter to them the most. Foreign investors would then be able to anticipate any potential problems and formulate creative solutions. Failure to do so may not only result in costly delays, but may cause the deal to ultimately unravel.

Many commentators have urged that the ICA review process be made more transparent. Clearer interpretation guidelines of the "net-benefit" test would help to reduce the significant transactional risks faced by foreign investors attempting an outright acquisition and control of a significant Canadian asset. Further clarity may soon come if the iconic Research in Motion Ltd. (makers of the Blackberry smart phones) becomes the target of a foreign takeover. The Canadian Minister of Finance Jim Flaherty has said that, "RIM (Research in Motion) is a private company that trades and has shareholders...they will be the masters of their own destiny4." And with Glencore's acquisition of Viterra (a dominant Canadian grain company) moving ahead, confidence in Canada's willingness to open up to foreign investment should be further enhanced.

Footnotes

1. Potash is the largest potash producer in the world and controls approximately 20% of the world's production capacity.

2. In 2012, if the book value of the assets of the Canadian business to be acquired exceeds $330 million, a pre-acquisition application for review must be filed. The $330 million threshold is expected to continue to trend significantly upwards.

3. Legal jurisdiction in Canada is divided between provincial (or territorial) governments and the federal government. Generally speaking, provincial governments have the power to enact laws governing local matters, while the federal government has jurisdiction over matters which are national in scope such as national defense. In certain areas of overlap, provincial and federal governments share jurisdiction. For example, provincial governments have primary responsibility over education and non-renewable natural resources, whereas agriculture and immigration are matters of shared jurisdiction.

4. Reference: http://uk.reuters.com/article/2012/03/30/rim-flaherty-idUKT5E8EJ00720120330

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2012 McMillan LLP

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions