Snap analysis: Canada shows its limits for M&A tolerance

By Jeffrey Hodgson

TORONTO (BestGrowthStock) – Canada on Wednesday blocked BHP Billiton’s $39 billion bid for Potash Corp, the world’s biggest producer of a key crop nutrient, throwing its reputation as a business-friendly country deeply into question.

* The decision shows that after waving through hundreds of takeovers, Canada is not entirely “open for business”. Like many countries, it has become more wary about allowing foreign investors to gain control of companies that hold strategic resources.

* Many market watchers do not see the rejection as definitive. BHP has 30 days to make additional representations, which is seen as an opportunity to sweeten the bid or offer other concessions. But Industry Minister Tony Clement used strong language in rejecting the deal, noting “some decisions can only be taken once and there is no turning back ever such as the case today.”

* The decision raises questions about whether bids for other major Canadian companies could face similar obstacles and it may erode any takeover premium embedded in their stock price. Some think it could also scare away international capital.

* Heading into the decision, fund managers said the government’s ruling could have implications for Canadian large-cap energy companies. Many are involved in Alberta’s massive oil sands, the largest crude oil source outside the Middle East, widely seen as a strategic resource.

* Wednesday’s decision raises questions about whether Ottawa might also block bids for companies like Suncor Energy Inc, Talisman Energy, Canadian Natural Resources and Cenovus Energy.

* While hesitant about interfering in market forces, many domestic investors lament the loss of other major resource companies through takeovers in recent years. These included nickel producers Inco, once the Western world’s largest, and Falconbridge, as well as Alcan, one of the world’s biggest aluminum producers, and the top names among Canada’s publicly listed steel makers.

* The decision should have no impact on sectors of the market protected by foreign or other ownership restrictions, which include Canadian banks and telecom and media firms.

(Editing by Rob Wilson)

Snap analysis: Canada shows its limits for M&A tolerance