Canada will give investors more clarity on foreign ownership restrictions after BHP Billiton Ltd. withdrew its hostile $40 billion offer for Potash Corp. of Saskatchewan Inc. following an initial rejection.
“The government will be in a position not only to give reasons for the decision but to give broader guidance to the investment community on the kind of foreign investment it is and is not seeking,” Prime Minister Stephen Harper told reporters yesterday, hours before BHP said it abandoned the bid.
Canada rejected the bid from Melbourne-based BHP on Nov. 3, saying it didn’t provide a “net benefit” to Canada. The ruling was only the nation’s second rejection of a foreign takeover in the past 25 years, and BHP, the world’s biggest mining company, said yesterday it would instead reactivate the remaining $4.2 billion part of its suspended $13 billion buyback program.
Industry Minister Tony Clement last night said in a statement from Ottawa that BHP showed “good faith and integrity throughout the process,” adding that the government recognizes “there may be ways to improve the review process.”
Clement told reporters in Toronto last night he rejected the bid in part because of concern BHP wouldn’t bring new expertise or increase production. BHP doesn’t currently produce Potash and probably couldn’t bring improved mining techniques, Clement said.
“It had become completely inevitable that BHP would withdraw rather than face a second rejection,” Mark Connelly, a New York-based analyst with Credit Agricole SA, said in a telephone interview.
BHP Chief Executive Officer Marius Kloppers had obtained $45 billion of loans in September to fund the proposed acquisition, which met with opposition from Canadian politicians and investors. The failed bid will incur a transaction cost of about $350 million, BHP said.
Harper this week attended a summit of Group of 20 leaders in Seoul, where he held bilateral talks with Australian Prime Minister Julia Gillard. Harper, who spoke yesterday at the Asia- Pacific Economic Cooperation summit in Yokohama, Japan, said he and Gillard spoke about BHP though he didn’t provide details.
Harper has campaigned for Group of 20 countries to resist protectionism and earlier this year abolished all tariffs on imported machinery and equipment. Foreign direct investment in Canada has more than doubled in the past 10 years, reaching C$549 billion in 2009, government statistics show.
Since Harper first became prime minister in 2006, foreigners have spent $367 billion to acquire 2,391 Canadian companies, while Canadian businesses have spent $310 billion to buy 2,866 foreign firms, Bloomberg data shows.
Among Canadian acquisitions in the past decade, Thomson Corp. bought Reuters Group Plc of the U.K. for $18.2 billion in 2007 and Manulife Financial Corp. acquired John Hancock Financial Services Inc. of Boston for $10.9 billion in 2003.
Saskatchewan is home to the world’s largest reserves of potash, a form of potassium farmers use to boost crop yields. Saskatoon-based Potash Corp. is the world’s largest maker of potash by capacity. The province’s premier, Brad Wall, said Canada’s rejection of the bid was justified because potash is “a very strategic resource.” Wall, an ally of Harper, also rallied support from other provinces including Quebec and Alberta to oppose the sale.
BHP’s decision underscores its belief that the offer “undervalued” the company, Potash Corp. said in a statement.
The government should amend the foreign investment law to make a more specific test than the current “net benefit” rule, make the reviews more “transparent” and give more power to seek future damages, Ralph Goodale, a Saskatchewan lawmaker and deputy leader of the opposition Liberal Party, said in a telephone interview. “Right now it’s a closed black box.”
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