Canada Mulls BHP’s Takeover Bid of World’s Largest Potash Corp.
Created: November 1, 2010Last Updated: November 3, 2010
Related articles: World » North America
A view of operations at Potash Corp.'s Lanigan, Saskatchewan mine. (Courtesty of Potash Corporation of Saskatchewan)
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EDMONTON, Canada—The world’s largest mining firm, BHP Billiton , is faced with a hurdle before it can continue pursuing its $38.6 billion hostile takeover bid for the world’s largest potash producer, the Potash Corporation of Saskatchewan.
Under the Investment Canada Act, BHP’s proposal has to be reviewed to ensure it will result in a net benefit to Canada. The matter is currently before the federal government who will render a decision by Wednesday.
Brad Wall, premier of the Canadian province of Saskatchewan, announced last month that the proposed takeover will not ultimately benefit the people of his province and Canadians, and asked the federal government to stop the bid.
He said the takeover will have a negative result on jobs and investment, provincial revenues, as well as “Canadian control of an important Canadian resource.”
"We simply cannot take that risk with this valuable resource that belongs to the people of Saskatchewan," Wall said in a press statement.
Last week, Saskatchewan Energy and Resources Minister Bill Boyd along with Enterprise Minister Jeremy Harrison paid a visit to federal Industry Minister Tony Clement to express their concerns if the takeover bid is allowed to proceed.
Speaking before the Canadian Parliament last month, Prime Minister Stephen Harper said the government will hear from all sides in the matter and make a decision based on the Investment Canada Act.
In what some saw as a hint favoring nonintervention, Harper also mentioned that the proposal is “for an American-controlled company to be taken over by an Australian-controlled company.”
Canadian shareholders own 49 percent of Potash Corp., while American shareholders account for 38 percent out of the 51 percent foreign-owned shares. Some of the head-office jobs of the company are currently in Chicago, though the company has promised to relocate some of its top executives back to Saskatoon. Nine out of 12 directors of the company are Canadian.
The Australian mining giant BHP has also promised to locate the head office in Saskatchewan and maintain the current levels of employment.
Potash Corp. launched a lawsuit against BHP in September alleging that the company misrepresented facts related to its takeover bid, and has requested a preliminary injunction to block the bid.
Potash Corp. has expressed that the $130 per share offered by BHP undervalues the company.
Canada has only used the act to block a foreign takeover once when it refused the bid by U.S.-based Alliant Techsystems Inc. for MacDonald Dettwiler & Associates Ltd.’s space division in 2008.
University of Toronto Rotman School of Management finance professor Laurence Booth says what is different in this case is that Potash Corp. is a resource company, whereas MacDonald Dettwiler is a technology company.
“The critical thing there is that the technology can be taken out of the country, but resources basically are within the country and they are controlled, so foreign ownership over resources poses less problems for Canada than foreign ownership of manufacturing or technology,” he says.
Booth says if Canada opposes the takeover, it will set precedence and be a dark spot in the country’s claims of encouraging foreign investment.
“What's at stake is Canada's reputation being open for business, and for the fact that we do not put road blocks generally in the face of companies taking over Canadian corporations,” he says.
But the decision is not an easy one for Canada’s Conservative government that does not want to lose the 13 out of 14 constituency seats they currently posses in Saskatchewan in the next election.
Saskatchewan has also received support from other provincial governments and federal opposition parties who do not want to see the takeover happen.
A report by the Conference Board of Canada commissioned by the government of Saskatchewan says that a takeover by BHP Billiton would mean the senior management of Potash Corp. would change from a North American dominated one to an Australian/South African/British one.
It also noted the acquisition would result in a loss of $200 million (US$196 million) per year for 10 years since BHP would be able to write off capital costs of another project the company is currently pursuing in the province against profits made by Potash Corp.
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