PotashCorp ruling casts doubt on M&A in Canada – analysts

04 November 2010 17:14  [Source: ICIS news]

TORONTO (ICIS)--Canada’s decision to block BHP Billiton’s hostile takeover bid for PotashCorp casts doubt on mergers and acquisition (M&A) activity in the country, and could harm foreign investor and shareholder confidence, analysts said on Thursday.

The ruling by Canada’s industry ministry on Wednesday came after all but one of more than 1,600 foreign takeovers had been approved since the Investment Canada Act was passed in 1985 – including the takeovers of resources majors such as Inco, Falconbridge, Alcan and NOVA Chemicals.

Canadian analysts said the government’s decision seemed to be politically driven to help Prime Minister Stephen Harper’s Conservative minority government retain support in Saskatchewan after that province had come out in strong opposition to BHP’s bid.

“I don’t think it looks good on Canada,” said Terry Shaunessy, portfolio manager at Calgary-based Shaunessy Investment, in a briefing on Canadian business television.

“You had a bona fide bid. The province of Saskatchewan owned PotashCorp 20 years ago; they decided to sell it to the public. We as shareholders bought this thing in good faith, [PotashCorp] CEO [Bill Doyle] ran around looking for a counter-bid, there were none, and now we have been cut off,” he said.

Analysts noted that the government had not completely rejected the deal as it granted BHP a 30-day appeal period to come back with a revised proposal.

But Mark Lackey, an analyst at Toronto-based financial services firm Pope & Company, said BHP should look elsewhere for an acquisition opportunity. He suggested US-based Mosaic or a smaller Canadian potash firm as targets for BHP.

“The Conservatives have drawn a line in the sand, and I don’t think this 30-day window is going to mean all that much,” Lackey said.

“When a conservative government steps in and stops you, that has to tell you something; clearly there is a lot of opposition to this deal politically,” he added.

Lackey’s view contrasted with that of US investment firm Dahlman Rose, which said in a report earlier on Thursday that Canada would likely allow a revised BHP bid to go through.

Lackey noted that Canada’s rejection of BHP’s bid contrasted with the government's usual “pro-business” stance.

In the last G20 meeting in Toronto, Canada was leading the charge for more open markets in the wake of the global economic crisis, he said.

Following the PotashCorp ruling, the government will now be under pressure to allow the next major foreign takeover deal in order to regain foreign investor confidence, he added.

Meanwhile, Canada’s national Globe and Mail newspaper said that the Harper government had “some explaining to do”.

In a front-page editorial on Thursday, the newspaper called on the government to “tell the world where the goalposts now stand when it comes to investing in Canada”.

“Or is this [PotashCorp ruling] simply about the Conservatives seeking to save 13 seats in Saskatchewan - a reasonable desire for any ruling party, but one that deserves a little more honesty from those who just confounded the honest shareholders of the country,” the newspaper said.

($1 = €0.71)

For more on PotashCorp and other producers visit ICIS company intelligence
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By: Stefan Baumgarten
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