Canada’s BHP decision marks only second rejection ever

TORONTO (BestGrowthStock) – Canada’s rejection of BHP Billiton’s $39 billion takeover of Potash Corp is unusual for a country that has championed open market policies for decades.

Successive governments from the left and right have allowed foreign takeovers of Canadian companies in a wide range of industries.

“It will send a bit of a negative message in the short term, but not in the medium- or long term,” said a lawyer who specializes in mergers and acquisitions at one of Canada’s top corporate law firms.

“This is not Canada putting up a sign saying ‘closed for business,'” he said, adding that he did not expect a reversal of the decision after 30 days because BHP likely already did all the negotiating it could up to the announcement on Wednesday.

Canadian governments have championed open market policies, and have even been criticized for allowing the so-called “hollowing out” of corporate Canada.

Since 1985, when Parliament enacted a law governing foreign acquisitions, Industry Canada has reviewed and approved 1,637 foreign acquisitions under the Investment Canada Act. Until the BHP deal, it had blocked one.

“It’s difficult to understand in terms of economics why it’s happening,” said Laurence Booth, a professor of finance at the University of Toronto Rotman School of Management.

“Politically, it’s easy to understand, so I would say this is clearly a political decision, it’s not an economic decision.”

The last rejection came in May 2008, when the government ruled against the proposed sale of the nation’s largest satellite and space robotics company, Macdonald, Dettwiler and Associates.

Investment bankers say that deal, which would have been worth some C$1.3 billion if it had gone through, failed because it posed serious security questions in Ottawa’s view.

“It was taxpayers dollars that had been used to develop a technology within Dettwiler. … So you can sort of get your head around why the government found that one offensive,” said a Canadian banker specializing in mergers and acquisitions at one of Canada’s leading banks.

In that decision, then Industry Minister Jim Prentice said he was not satisfied the proposed takeover of Macdonald, Dettwiler by Alliant Techsystems Inc., a U.S. defense contractor, was likely to be of net benefit to Canada.

According to the Investment Canada Act, Canada must review foreign acquisitions involving investments beyond a certain threshold, set at C$299 million for 2010.

In the past five years the country has allowed the sale of a host of resource and resource-related interests, including the takeover of Inco, once the Western world’s largest nickel producer, by Brazil’s Vale SA in 2007.

That was also the year when Montreal-based Alcan was bought by Rio Tinto for $38 billion and when United States Steel Corp bought Canadian steel giant Stelco.

Anglo-Swiss Xstrata bought another Canadian resource jewel, Falconbridge, in 2006.

In each case, companies had to agree to a series of concessions in areas ranging from jobs to technology in order for deals to be consummated.

Critics note the government has failed in many cases to enforce concessions agreed to when marriage vows were made, especially in the area of job protection.

Canada has been suing US Steel since 2009, claiming its decision to temporarily shut down two former Stelco plants in Ontario violated promises it made about maintaining jobs.

U.S. Steel took over Hamilton, Ontario-based Stelco in 2007, and the decision to idle the facilities affected about 1,500 jobs. The company blamed weak demand for the shutdowns and denies it broke any promises.

(Reporting by Pav Jordan; Editing by Frank McGurty)

Canada’s BHP decision marks only second rejection ever