BHP Billiton

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On April 27, 2012, the federal government announced it would amend the Investment Canada Act to allow the Minister of Industry greater flexibility in explaining why a proposed foreign takeover of a Canadian business raises preliminary concerns.  The amendments, contained in the government’s annual budget bill, will also empower the Minister to accept offers of security as a performance guarantee.

Canada’s foreign investment regime requires that any acquisition of control of a Canadian business by a non-Canadian, where the book value of the assets of the Canadian business exceeds a prescribed threshold (currently C$330 million), be reviewed and approved by the Minister of Industry before closing.  The Minister must determine the transaction is likely to result in a “net benefit” to Canada, based on a number of factors contained in the Act.  In the 26-year history of the Act, governments have used it only twice to block transactions:  once in 2008 when Aliant Techsystems tried to buy MacDonald Dettwiler & Associates Ltd.’s aerospace business, and then in 2010 when BHP Billiton sought to acquire Potash Corporation.

Apparently drawing inspiration from the opening lines of British stand-up comedian Alexie Sayle’s 1985 hit, Canadian Prime Minister Stephen Harper has again waded into the issue of foreign investment in Canada.  Harper’s is the only government to have used the Investment Canada Act to reject an announced acquisition of a Canadian business, first in 2008 and then again in 2010. Following the latter, BHP Billiton’s proposed hostile take-over of Potash Corporation, the government announced its intention to “clarify” the criteria used to evaluate transactions.  More than a year later, no clarification has been provided.

Government officials, including the prime minister, have signalled that the BHP case should not be seen as evidence of a shift in policy toward a more stringent approach to foreign investment review.  However, Prime Minister Harper himself has made a number of public comments recently that call into question that assertion, including:

  • Telling Reuters that “hostile takeovers of key Canadian businesses” and “takeovers of critical technology that the government’s invested in” are “obviously…widely understood [as] not in this country’s interest.”