Canadian politics thwarted BHP’s bid for PotashCorp – analysts

16 November 2010 18:33  [Source: ICIS news]

TORONTO (ICIS)--Canada’s decision to block BHP Billiton’s $39bn (€29bn) hostile takeover bid for PotashCorp was political, as Prime Minister Stephen Harper's Conservative minority government is worried about the next election, analysts and commentators said on Tuesday.

“[It] is hard to see the decision as anything other than a bid to keep 13 Conservative seats in Saskatchewan” province, the country’s national Globe and Mail newspaper said in an editorial.

As it stood, the government’s finding that the takeover would not be of “net benefit” to Canada was both unclear and unconvincing, the paper said.

Ron Mayers, senior vice-president at Canada's Laurentian Bank Securities, was even more direct.

“We know what happened, right?” Mayers said in a briefing on Canadian business television.

“[Industry minister Tony] Clement’s advisers came to him and said ‘If we approve this deal chances are we are going to lose the [next] election’, so Clement went to Harper and said ‘The election of a Liberal government doesn’t seem to be a ‘net benefit to Canada’, and they voted down the transaction,” he added.

“This is entirely political, it is entirely self-serving,” he said. 

“Potash was a bad decision. No matter how you slice it, it makes no economic sense, and it’s not good for Canada,” he added.

The government’s rejection of BHP’s bid came after all but one out of more than 1,600 takeovers of Canadian firms had been approved since the relevant legislation, the Investment Canada Act, came into force in 1985 - including the takeovers of resources majors such as Inco, Falconbridge, Alcan and NOVA Chemicals.

The one deal that was rejected, for national security reasons, concerned satellite technology.

Mayers said that given the earlier approvals of foreign takeovers, the government had now set a new precedent and would find it hard to redefine what exactly “net benefit” to Canada really meant.

However, Mayers also said he hoped that in time the “foolishness” of the BHP rejection would fade and foreign investors would not be deterred from Canada.

“I think [Canada] would have got to get a lot sillier, on a consistent basis, before you actually chill investment,” he said.

Mayers added that without the “political noise” – namely, strong opposition to the deal from Saskatchewan and other provinces, as well as the federal Liberal opposition party – Harper’s government would have approved BHP’s bid.

Stephen Jarislowsky, a Montreal-based Canadian billionaire investor, agreed that the government’s decision was politically driven, but for the right reasons as Canada needed to protect its natural resource companies.

Canada needed to keep corporate head offices and big stock market listings or it would become a colonial state, he said in an interview on Canadian business television.

Jarislowsky, who holds an estimated 3% in PotashCorp, added that he wrote to the government of Saskatchewan to press PotashCorp to relocate senior management staff from offices in Chicago to Canada.

Commentators said the government’s decision against BHP – despite the extensive employment and investment commitments to Canada the Anglo-Australian company had made to win approval – puts the onus on PotashCorp CEO Bill Doyle to make good on his “pledge to Saskatchewan” and prove that Canada was really better off.

BHP withdrew its $130/share bid for PotashCorp on Monday, but it said it remained committed to Canada, where it plans to develop a major potash project, the Jansen mine near Saskatoon, Saskatchewan.

PotashCorp's shares were down 2.74% to $133.51 at 12:03 local time in New York.

($1 = €0.74)

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By: Stefan Baumgarten
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