Copyright 2008, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Competition Law, April 2008
Over the past several months, the federal government has demonstrated its willingness to use the Investment Canada Act (the Act) to closely screen acquisitions of Canadian businesses by foreign investors.
Recent developments in this regard include:
-
On April 10, 2008, it was reported that the Minister of
Industry, Jim Prentice, had sent a notice to Alliant
Techsystems Inc. (ATK), a Minnesota-based company, advising
ATK that its proposed acquisition of MacDonald Dettwiler
and Associates (MDA) is not likely to be of net benefit to
Canada – this being the statutory test under the
Act for ATK being in a position to complete the
acquisition.
MDA operates Radarsat-2, a satellite that is used to observe Canada's Arctic, and is also the developer of the 'Canadarm', the robotic limb used on the space shuttle and International Space Station. The Minister's letter to ATK was sent pursuant to subsection 23(1) of the Act. Under this section, ATK has 30 days – or such further period as may be agreed on with the Minister – to make any additional representations and undertakings in an effort to demonstrate to the Minister that its acquisition is likely to be of net benefit to Canada. This development is particularly noteworthy for at least two reasons. First, it is relatively uncommon for the Minister to issue a formal letter under subsection 23(1) indicating that he is prepared not to approve a proposed transaction. In the overwhelming majority of cases, the investor and Minister can arrive at a favourable net benefit ruling within the initial 45-day waiting period or following an extension thereof. Second, ATK is a U.S. investor. With the exception of a Canadian business engaged in a cultural business, there is no history of the Act being used to potentially block a transaction involving an investor from the United States. Recent scrutiny under the Act has been limited to state-owned enterprises (see below) and investments from certain other parts of the globe. In defending the Minister's decision, Prime Minister Stephen Harper told the House of Commons that "No one should doubt the determination of this government and this minister to protect this country's interests"..
- In December 2007, Industry Canada released guidelines on the review of investments by state-owned enterprises (SOEs), such as sovereign wealth funds. The guidelines reflect the government's policy that the governance and commercial orientation of SOEs will be considered in determining whether an investment subject to review under the Act is of 'net benefit' to Canada. In particular, the guidelines state that the Minister of Industry will examine whether the SOE making the investment adheres to Canadian standards of corporate governance, such as commitments to transparency and disclosure, independent members of the board of directors, and independent audit committees.
- On various occasions, the federal government has confirmed that it is considering the proposal of a national security test as part of the Minister of Industry's review of foreign investments under the Act. In particular, the Competition Policy Review Panel, which was established by the federal government in July 2007, is considering the possibility of a national security review clause as part of its mandate to review key elements of Canada's competition and investment policies to ensure that they are working effectively.
Canada is not alone in reconsidering how investments by foreign investors will be reviewed. On April 9, 2008, for example, the U.S. Treasury Department announced that it will be releasing rules by the end of April clarifying how the government will examine acquisitions by foreign investors that may pose national security risks.
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