BHP Billiton Ltd. would get Canadian approval for its $40 billion hostile bid for Potash Corp. of Saskatchewan Inc. by pledging to preserve head-office jobs and support a fertilizer-marketing company, said lawyers specializing in foreign investment and a former minister.
In the past 25 years, Canada has only formally rejected one takeover offer, Alliant Techsystems Inc.’s bid for MacDonald Dettwiler & Associates Ltd.’s space business in 2008, according to John Manley, who was federal industry minister from 1993 to 2000. Prime Minister Stephen Harper has made increased foreign investment one of his Conservative government’s priorities.
“If they make undertakings with respect to investment and employment and a Canadian head office, it’s hard to see the basis on which this is going to be opposed,” Mark Nicholson, a lawyer with Cassels Brock & Blackwell LLP in Toronto, said in a telephone interview. Nicholson specializes in competition law, antitrust issues and foreign investment.
The biggest regulatory hurdle for the Melbourne-based company’s offer will be to get Industry Minister Tony Clement’s approval under the Investment Canada process, Nicholson said. An antitrust review, which is conducted by the Competition Bureau, is unlikely to pose problems because BHP doesn’t yet have working potash mines in Canada and its Jansen project in Saskatchewan, if it goes ahead, wouldn’t start production for many years, he said.
“My gut feeling is that Canadian competition law is not likely to be a huge show-stopper or even a huge delaying factor,” Nicholson said.
Under the Investment Canada Act, the government can block any transaction valued at C$299 million ($284 million) or more if it finds the deal doesn’t provide “net benefits” to the country, based on factors such as economic activity, employment and productivity. The Alliant acquisition was blocked because of the net-benefit stipulation.
The Canadian government last year amended the law to include a review of any investment that may have a national- security component.
BHP has said it would make Saskatchewan home to its head office for potash operations, continue developing its Jansen potash project, maintain current employment levels and propose a Canadian nominee for election to its board.
Clement may ask BHP for additional concessions, said Subrata Bhattacharjee, a Toronto-based lawyer at Heenan Blaikie LLP who specializes in competition and foreign-investment issues.
‘Lot of Efforts’
“BHP has clearly thought about and identified many of those concerns upfront,” Bhattacharjee said in a telephone interview. “BHP has made a lot of efforts in trying to demonstrate to the province that they’re committed and interested in doing business in Saskatchewan.”
Potash Corp., the world’s biggest producer of its namesake crop nutrient, formally rejected the all-cash $130-a-share offer from the world’s largest mining company on Aug. 23 and said it was seeking other suitors. Saskatchewan accounts for 30 percent of global production of potash, according to the province’s Energy and Resources website, and is home to five of Saskatoon- based Potash Corp.’s six main potash operations.
Offers to buy extraction companies raise fewer concerns from governments than many other bids because the resource and most of the jobs tied to it can’t be moved, said former minister Manley, who now heads the Canadian Council of Chief Executives.
Still, while Saskatchewan doesn’t have the authority to block the acquisition, Clement will be “quite concerned with what the province has to say,” Manley said in a telephone interview.
Manley also said that while outright rejection is rare, companies have in the past walked away from potential acquisitions because they found after private talks with government officials that Canada’s demands were too onerous.
Saskatchewan Energy and Resources Minister Bill Boyd said yesterday he wants commitments on head-office jobs, and he expressed concerns that BHP might break up Canpotex Ltd., the fertilizer marketing company jointly owned by Potash Corp., Mosaic Co. and Agrium Inc.
“Canpotex is a very important part of this discussion,” Boyd said in a telephone interview. “We want to make sure that we maximize on the resources for Saskatchewan people.”
Boyd said he asked the Conference Board of Canada to conduct a study by Sept. 30 to identify the “risks and opportunities” to the province from a Potash Corp. takeover.
Possible Sinochem Bid
Manley, Bhattacharjee and Nicholson said that the approval process for a bid by a state-owned competitor such as China’s Sinochem Group would be much more complicated than for a BHP transaction.
Canada released guidelines in 2007 for state-run firms investing in the country that take into account “the nature and extent of control by a foreign government,” former Industry Minister Jim Prentice said at the time.
Saskatchewan’s Boyd said a buyout from a state-owned enterprise for Potash Corp. wouldn’t be in the province’s best interests.
A state-owned bidder “would be interested in low-priced commodities, and clearly that’s not in the interest of Saskatchewan taxpayers,’’ Boyd said in the telephone interview.
Ruban Yogarajah, a London-based BHP spokesman, didn’t return a call seeking comment yesterday.
For BHP’s review to succeed, the company will have to be prudent to avoid doing anything that would create a political backlash against the acquisition, Manley and Bhattacharjee said.
“The Investment Canada Act review is one that ultimately turns on the discretion of the minister,” Bhattacharjee said. “Although the minister has certain factors that he’s required to consider, it is still a heavily and highly politicized process.”