It took a strong-willed Saskatchewan government, along with widespread outcry across the country, to persuade the Harper government to block the foreign takeover of Potash Corp.
Whoever forms the next government will have to make controversial decisions, on whether to approve the foreign takeover of the Toronto Stock Exchange and whether Google should snap up the ownership of Nortel’s massive portfolio of patents.
Free-market zealots contend that ownership does not matter, so the state should stay out of the way. But reality tells us it does matter.
With a foreign takeover, the locus of decision-making moves out of Canada, as do the top jobs. Related business services are dropped when the functions of the Canadian corporate head office are reduced to essentially clerical activities.
Local suppliers may find themselves squeezed out in favour of suppliers used by the new parent company. The opportunity to grow the Canadian company into something bigger is lost.
Foreign takeovers of Canadian tech companies may be designed simply to get the intellectual property or to prevent a new competitor from emerging. The foreign parent is less likely to have a philanthropic interest in Canadian hospitals, universities or the arts.
Not all foreign takeovers are bad. New owners can bring access to new markets and technology, or capital for growth. But Canada needs the capacity to determine when a takeover has implications that are negative for the country.
Since mid-1985 we have relied on Investment Canada to make those assessments. Since then, until the end of March of this year, Investment Canada had reviewed and approved 1,646 foreign takeovers of Canadian companies, with an asset value of $600.8 billion. It had also received notifications of another 12,407 takeovers of Canadian companies, with an asset value of $353.7 billion — takeovers where the Canadian company fell below the threshold value for review. Altogether, since mid-1985, foreign takeovers of Canadian companies have totalled almost $1 trillion.
Only two foreign takeovers have ever been blocked: Potash Corp. and a 2008 foreign bid to acquire MacDonald Dettwiler, a Canadian aerospace company, both by the Harper government, despite its stated intent to make foreign takeovers easier.
Under changes contained in the 2009 stimulus budget, eventually only foreign takeovers of Canadian companies with a balance sheet asset value in excess of $1 billion will be subject to review. This is expected to occur over the next four to five years, in stages going to $600 million, $800 million and then $1 billion. The current threshold is $312 million.
A small handful of exempted industries, such as broadcasting, will be subject to more restrictive criteria. But what this means is that only the foreign takeover of the largest Canadian companies would be subject to scrutiny and potential blockage.
But there has been concern that the Investment Canada test of a takeover, what it calls “net benefit”, the lack of transparency in its decisions so that it’s not known what conditions may be attached or whether they are monitored, and the fact that a simple threshold level means that many of Canada’s tech winners will be acquired without any review since they fall below the threshold.
The world’s biggest multinationals are always on the look for promising Canadian tech companies, with Tundra Semiconductor and Dalsa, two world-class companies, recently being scooped up.
This election would have been a good time to see where the parties stand on the issue. But it has not been an issue, though the Liberals did make some reference in their recent platform document.
While declaring that foreign investment is welcome here, the Liberals promised to make Investment Canada “more transparent,” clarify how “net benefit” is assessed, emphasize the importance of Canadian headquarters and management control and spell out when a company can be considered to be of particular “strategic value” to Canada.
But the Liberals appear to have dropped their earlier pledge to replace the “net benefit” test with “national interest” as the test.
The foreign takeover issue is not going to go away. So we need to think much more clearly about what is at stake. If Canada is to succeed in the tough competitive world of the 21st century, and provide good jobs, then we have to develop more Canadian-headquartered world-class companies. That won’t happen if our rising stars are snapped up by predatory foreign buyers.
David Crane can be reached at crane@interlog.com.