Quebec will move to shield businesses from hostile takeovers and buy direct stakes in oil and mining projects to nurture homegrown companies, Finance Minister Nicolas Marceau said.
Marceau proposed amendments to the province’s Business Corporations Act that would give public companies “adequate means of defense” against unsolicited bids. The measures are aimed at preserving head-office jobs that help generate C$5 billion ($4.5 billion) in economic activity, according to Marceau’s budget released yesterday in Quebec City.
Quebec’s moves come as Montreal-based Osisko Mining Corp. (OSK) seeks alternatives to a C$2.98 billion hostile bid from Goldcorp Inc. (G) that it rejected as too low. U.S. retailer Lowe’s Cos. (LOW) dropped its plan for an unsolicited takeover of Quebec rival Rona Inc. (RON) in 2012 after the proposal sparked opposition from provincial politicians and investors such as the Caisse de Depot et Placement du Quebec.
“Being masters and prosperous in our own house also means protecting the head offices of Quebec businesses,” Marceau said, according to the text of a speech to the Quebec legislature. “The presence of head offices in Quebec is both a major source of wealth and a strategic factor in economic-development decisions.”
The takeover recommendations are contained in a report prepared by a task force led by CGI Group Inc. (GIB/A) Executive Vice President Claude Seguin. Quebec companies would have the right to amend their statutes accordingly if the law is passed, Marceau said.
“These are necessary measures that will allow Quebec to be comparable to some U.S. states,” Francoise Bertrand, chief executive officer of the Federation des Chambres de Commerce du Quebec, a business lobby group, said in an interview in Quebec City. “When a hostile bid is not in the best interest of a company’s survival, it’s very important for the board to have options at its disposal. There’s nothing in our toolkit now to prevent a company like Osisko from being taken over,” said Bertrand, who also serves as chairwoman of Montreal-based media and telecommunications company Quebecor Inc. (QBR/B)
Seguin’s report identified 25 Quebec-based companies that remain “more vulnerable” to a hostile bid. Of those, eight -- such as Rona and grocer Metro Inc. (MRU) -- are incorporated under Quebec legislation. Another 17 -- including Osisko and engineering firm SNC-Lavalin Group Inc. (SNC) -- are incorporated under Canadian legislation. The proposed changes would only apply to companies incorporated in the province, meaning Osisko would need to change its charter to benefit from the takeover protection. As of 2011, there were 578 head offices in Quebec.
“Too many head offices remain vulnerable to takeover bids that are attractive in the short term to the shareholders but that would cause significant economic losses for Quebec,” the report found.
Lowe’s failed bid for Rona acted as a catalyst for the recommendations of the Seguin task force, said a Quebec finance ministry official. Quebec’s proposed legislation is patterned after articles already in force in U.S. states such as Ohio, the official said.
Quebec’s Parti Quebecois government lacks a majority in the provincial legislature, meaning that it needs the support of opposition parties to adopt laws. Montreal’s La Presse newspaper and Ici Radio-Canada television both reported this week that Premier Pauline Marois, buoyed by rising support for her party, is preparing to call an April election next month. Both opposition parties pledged to defeat the budget.
“With Goldcorp making noises about Osisko, that could well become an election issue the way Rona did in the last election and we can expect some fireworks,” Antonia Maioni, associate professor of political science at Montreal’s McGill University, said in a telephone interview. Marois “is going to try to fight on the side of bringing the nationalist message home through the economic prism. Deep in the Quebec psyche there’s this idea about being ‘masters in our own house’ -- and these are the roots of the Parti Quebecois.”
John Burzynski, Osisko’s vice president of corporate development, didn’t immediately return a call from Bloomberg for comment on Quebec’s plan.
“For all the U.S. states and in Canada, head-office locations are quite important to everybody,” Sean Roosen, chief executive officer of Osisko, said in an phone interview Feb. 19, before the budget was released. “Decision-making power attracts other services and provides other things and it has been a focus of the Quebec government in the past to try and encourage entrepreneurism in Quebec and to foster companies like Osisko.”
Investissement Quebec, the investment arm of the provincial government, owns Osisko convertible debentures and the Caisse de Depot, the province’s pension fund manager, is the company’s fifth-biggest shareholder with a 4.4 percent stake, according to data compiled by Bloomberg.
Osikso fell 1 percent to C$6.99 at 9:51 a.m. in Toronto and Goldcorp rose 0.7 percent to C$30.90.
The proposed takeover measures include barring companies that succeed in a hostile bid from selling more than 15 percent of a target’s assets for five years after a sale.
Investors that have owned the stock of a target company for at least two years would be granted a second voting right for each share held. Anyone attempting to buy a Quebec-based company through a hostile bid would not be allowed to exercise voting rights attached to the shares it owned after the offer was announced.
In addition, directors of a target company acquired through a hostile bid may not be removed before the end of their term, Marceau proposes.
Any profits made by a hostile bidder from the resale of shares of a target company in the 24 months following a takeover offer would need to be returned to the corporation if the shares were bought 12 months before the bid was announced.
Quebec will also consider tax breaks to encourage more companies to establish and maintain head offices in the province. These include incentives for employees to purchase shares; reduced taxes on stock options to keep more executives in Quebec; and modified taxes imposed on shareholders after death.
Marceau also announced that the government will boost its participation in mining companies that operate in the province through a dedicated C$1 billion fund. The government’s Resources Quebec unit may invest as much as C$250 million in projects related to non-renewable natural resources such as oil and gas, he said.
Quebec said last week it would invest C$115 million in two joint ventures that will conduct preliminary exploration work on Anticosti Island in the Gulf of St. Lawrence.
Potential profits from oil drilling on Anticosti may reach C$45 billion over 30 years, finance ministry documents show -- with Quebec seeking to capture 60 percent of all profits from the island’s resources, Marceau said.
“With these equity interests, Quebec is taking back control over our resources,” Marceau said.
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