Ottawa should block BHP Billiton’s bid for PotashCorp because promises made by foreign companies in takeovers often amount to “dreams and train smoke,” Saskatchewan’s premier said Tuesday, a day before the federal government will rule on the largest takeover in Canadian history.
Brad Wall said it would be a betrayal of the province if reports are true that Investment Canada has already tentatively approved the takeover, subject to certain conditions. The Saskatchewan government is firmly against the BHP bid, saying it does not provide a net benefit to the province or the country.
Wall said Investment Canada’s track record isn’t very good when it comes to inspecting promises made by foreign companies in takeovers.
“Saskatchewan has credibly presented, and others, have credibly presented the facts that when these takeovers happen and promises are made they’re not kept. They’re dreams and train smoke,” he said.
“They just fundamentally have been not kept by the companies, so now we’re going to get an extra super promise. Now we’re going to get a committee, an inspector, a promise inspector maybe to make sure it happens. At the end of the day, Investment Canada’s track record isn’t very good in terms of being of the promise inspector.”
The federal government has come under fire for its handling of recent foreign acquisitions. Brazilian mining giant Vale’s takeover of the former Inco in 2006 was criticized during a year-long strike involving about 3,000 employees at the company’s operations in Sudbury, Ont. Vale employees in Voisey’s Bay, N.L., are still on strike.
And Ottawa is in the midst of a lengthy court case with U.S. Steel Corp. (NYSE:X), which acquired the former Stelco in 2007. U.S. Steel admits it broke employment and production promises it made under the Investment Canada Act, but says it had no choice because of the global recession.
The premier also raised the possibility of a legal challenge if Ottawa allows the deal to go ahead.
“If we’re going to mount a legal challenge that would have to happen quickly and it will,” Wall said.
Industry Minister Tony Clement flatly denied reports Tuesday that Investment Canada had already made a tentative recommendation to approve the takeover, subject to certain conditions.
“As of yet no decision has been made and no decision or recommendation has been communicated to the investor,” Clement said in a statement.
He is expected to announce Ottawa’s ruling on the US$38.6 billion takeover Wednesday.
Liberal Leader Michael Ignatieff, said approving the deal would be a mistake for the Harper government.
”We are convinced that potash is an important resource but also a strategic one, given its importance in agriculture and the food-processing industry,” Ignatieff said in Montreal after a speech to an international-relations group.
”We have 51 per cent of the world’s potash. That gives us a lot of clout internationally. We can’t lose control of this natural resource. We think it isn’t in Canada’s strategic or economic interests.”
Ignatieff denied being protectionist, saying his party is not opposed to foreign investment in Canada.
BHP and PotashCorp declined to comment Tuesday on the reports the deal had already passed muster with the bureaucrats in Ottawa. The company has unsuccessfully attempted to woo Saskatchewan, saying that it would make the province the headquarters of its global potash operations and ensure the provincial government coffers aren’t hurt by the takeover.
Investment firm UBS suggested Tuesday the outcome was becoming increasingly difficult to predict.
“While we believe on pure regulatory grounds the deal should be approved, we note the outcome is becoming increasingly more political and difficult to assess should the prime minister look to win support by blocking the deal,” the investment firm said in a note to clients.
BHP has offered US$130 per share for the Canadian company.
Potash shares closed down $2.43 at C$146.27 on the Toronto Stock Exchange on Tuesday, but still well above the offer price — suggesting the story is far from over even if Ottawa approves the deal and either BHP could be forced to sweeten its bid or a new prospective buyer could yet come forward.
Under the Investment Canada Act, the federal government must make its decisions based on whether the foreign takeover would bring a “net benefit” to the country.
Ottawa blocked an attempt by MacDonald, Dettwiler and Associates Ltd. (TSX:MDA) to sell its space division to U.S. defence firm Alliant Techsystems Inc. in 2008, the first and only time the federal government rejected a foreign takeover outright under the act.
Potash Corp. of Saskatchewan (TSX:POT) is the world’s biggest producer of potash, a key component used in fertilizer.