The cutting face of a potash borer is shown in a deep shaft at the Rocanville potash mine, owed by the PotashCorp of Saskatchewan, in Rocanville, Sask. CP file photo by Troy Fleece
By Jennifer Graham
REGINA — Ottawa is being urged to consider Australia's foreign investment rules before approving a “mammoth” takeover of Saskatoon-based PotashCorp (TSX:POT) by Australian mining giant BHP Billiton.
Saskatchewan Premier Brad Wall suggested Tuesday that the US$38.6-billion bid might not get the go-ahead if it were up to Australia, a country which welcomes foreign investment but has killed large deals in past it considers are not in the national interest.
“They expressly point out that they may look at larger deals differently. They may look at deals that involve a great deal of their natural resources differently than smaller deals,” Wall told reporters at the provincial legislature in Regina.
“That's what we're saying. We're saying you can be a free market, free trading country but have rules that distinguish between the smaller takeovers and ones that are as mammoth as this one being proposed,” said Wall.
The proposed transaction would be the biggest-ever foreign takeover of a Canadian company, ranking just ahead of the blockbuster purchase of Montreal-based aluminum giant Alcan by Rio Tinto plc about three years ago. That was a friendly merger and was supported by Ottawa and the Quebec government.
However, the Saskatchewan government is firmly against the BHP bid, saying it does not provide a net benefit to the province or the country. Wall said Canada would be wise to look at the “national interest” test applied under Australia's own foreign investment policy.
“I think the investment review process might benefit from some improvement, some value-add where we would look a little bit more specifically at some of the ideas the Australians have about what might make certain deals different than other deals,” said Wall.
Australia requires takeovers to meet a “national interest” test, which takes into account the widely held community concerns of Australians. In Australia, the onus is on the government to find reasons to reject an investment proposal. This stands in marked contrast to the Canadian system, under which prospective investors must demonstrate a “net benefit” to Canada.
However, like the Canadian approach, the Australian test has a discretionary element. Critics of Australia's process argue there's no definition of the criteria used to determine whether an investment is in the national interest.
The rejection of foreign investment is rare in Australia. In 2001, the Australian government rejected an attempt by global energy giant Shell to mount a hostile takeover of Australian energy company Woodside Petroleum Ltd.
Wall said that did not discourage foreign investment in that country, which like Canada is a major exporter of copper, gold, coal, grain and other resources.
The premier has said he believes Saskatchewan could lose between $3 billion and $6 billion in revenue from taxes and royalties if BHP's bid is successful. And he said Canada's strategic interests would be put at risk if it sold most of its potash industry - which accounts for about a third of the world's supply of the mineral used in fertilizer - to an international company.
The premier said it's a takeover attempt like no one has ever seen in Canada and would continue a trend that has already seen much of the country's steel and mining sectors swallowed up by powerful multinationals.
BHP has said it's confident it can win over the province and get the deal approved by Ottawa. BHP has made several promises to Saskatchewan, saying it would locate the headquarters of its global potash operations in the province, it would maintain employment levels and it would make sure the province's coffers aren't hurt by the takeover.
Saskatchewan does not have the power to kill the BHP deal and can only put forward its position to Ottawa.
Saskatchewan Energy and Resources Minister Bill Boyd worked that part of the campaign by meeting in Ottawa with federal Industry Minister Tony Clement, who oversees Investment Canada. Boyd left the meeting without a firm commitment that Ottawa would support the province's position, but said he's optimistic.
“I think we had a good exchange. Mr. Clement mostly, I would say (was) listening to the concerns of Saskatchewan. Not really indicating ... what his personal preference is on this matter,” Boyd said Tuesday.
“I don't think they want to make any kind of a snap judgment on this. I think they want to weigh the information.”
Boyd also met with federal Finance Minister Jim Flaherty, the 13 Conservative MPs from Saskatchewan, Liberal Leader Michael Ignatieff and Ralph Goodale - the lone Liberal MP from Saskatchewan. Goodale emerged from the meeting saying MPs ignore Saskatchewan's position “at their peril.”
“This is not selling axe handles or something that is easily replicable somewhere else,” said Goodale.
“This is something that is absolutely fundamental to food production. Fifty-three per cent of the world's reserves are in Saskatchewan, and that's about to move into foreign ownership, presumably permanently.”
In the Commons, Liberal Leader Michael Ignatieff pressed the federal government to “say no to the Potash deal” and and said that approving it would be like “selling out Canadian interests.”
House Leader John Baird retorted that “in 13 long years and 11,000 applications, the Liberal Party never said no to a single takeover in Canada.”
“With respect to foreign investment in Canada,” Baird said. “the Minister of Industry and his officials will take the time necessary and then will make a decision only if it is in the net best interest to Canada and Canadians.”
Clement said he is considering Saskatchewan's position. However, the minister also suggested after question period that Wall “misunderstands how the Investment Canada Act works.”
“If you actually read the act, which I do encourage him to do, you will find that there's a number of provisions in the act that relate to the kinds of things that the Minister has to have regard for to determine what the net benefit to Canada is,” said Clement.
“So I don't think the act has to be changed. I think I have all the levers I need to make the appropriate decision on behalf of Canada.”
Clement is scheduled to release his decision Nov. 3.
At least one analyst suggests the deal may be almost dead.
“BHP clearly needs to be working hard behind the scenes now, if not to salvage its bid then to avoid a bigger public relations problem,” Mark Connelly of Credit Agricole Securities wrote in a report.
“Still, we expect Investment Canada to reject the bid. Whether they do so on or before 4 November, or later, is probably a function of BHP's lobbying success. However, if the bid is rejected, we would not expect another bidder to come along.”
“If the deal is not rejected, BHP will need to come up with a higher offer quickly (the current offer is $130, the stock is $143). We believe that a fair price is north of $170, and closer to $190.”
Meanwhile, Saskatchewan's securities commission said it will hear a challenge by BHP against defensive measures taken by PotashCorp to fend off the hostile takeover. The poison pill puts strict limits on who can buy PotashCorp stock.
The Saskatchewan Financial Services Commission said anybody who wants to seek standing at the Nov. 8 hearing in Regina should file its application by Friday.