* Govt to provide some insight on reasons for blocking a
* Move may provide some clarity around opaque investment
* Move seen as response to queries raised by BHP-Potash saga
* Govt may also seek security deposits from some foreign
By Euan Rocha
April 27 The Canadian government said on Friday
it intends to make its reviews of foreign takeovers more
transparent, by stating when it has reservations about a deal
and perhaps even going so far as to provide details about its
The move comes as a nod to those who have complained about
opaque rules that allow the government to block takeovers that
it does not think will provide a "net benefit" to Canada.
Canada, which traditionally bills itself as being open to
investment, shocked the international business community when it
vetoed Anglo-Australian miner BHP Billiton's $39 billion
hostile bid for fertilizer giant Potash Corp in 2010.
"The amendments would allow the minister (of industry) to
disclose publicly the fact that he has sent a preliminary notice
to an investor that he is not satisfied that the investment is
likely to be of net benefit to Canada," the government said in a
The change would also allow the minister to publicly explain
reasons for sending the initial rejection notice, as long as
this does not cause harm to either the Canadian business or the
The move is seen as a direct response to lingering questions
raised by the quashing of the BHP bid for Potash Corp.
"This is really just a reaction to BHP," said Oliver Borgers
a specialist in competition law at McCarthy Tétrault LLP in
Toronto. "This change creates an opportunity for the minister of
industry to explain the initial rejection."
As Canadian law stands, once the minister issues the initial
rejection, the bidder has 30 days to scramble to change the
minister's mind. If at the end of that period, the minister
still feels the deal ought to be rejected, then the minister has
to provide reasons for the rejection.
"In the BHP case the initial rejection was given and there
was no basis to give reasons or say anything about why," said
Borgers. "BHP in that case, perhaps because they were reading
the writing on the wall, withdrew their application. With the
result that the minister never had to do the final rejection and
was never in a position where he had to issue reasons, leaving
us all to this day wondering what the reasons for the rejection
That rejection prompted concerns about what the Conservative
government would do if, for example, a foreign company bid for
BlackBerry maker Research In Motion , a major
Canadian technology company that has fallen on hard times as
consumers shy away from its smartphones.
Some lawyers believe that the government's latest move will
not result in any dramatic change though, as the minister will
be limited by confidentiality concerns.
"I don't think this is going to result in a sea change
necessarily," said Kevin Ackhurst a partner with Norton Rose in
Toronto, who focuses on competition and antitrust issues. "The
question really is how much are they really going to be able to
say without going into commercially sensitive details."
Under the Investment Canada Act, the government can review
and block any foreign investments worth more than C$330 million
($337 million) - a paltry sum in the global mergers game - if it
thinks a deal is not in Canada's best interests.
It has exercised that right twice; once with the planned
acquisition of a satellite company by a U.S. bidder and in the
2010 bid for Potash Corp.
The latest amendment also proposes to address concerns of
some critics who argue that the Canadian government has little
recourse, if foreign acquirers fail to live up to promises they
make to the government in order to win consent for a deal.
The issue arose after Canada was forced to wade into a legal
battle with U.S. Steel Corp in order win the right to fine
the steelmaker for breaking job-protection promises made when it
bought Canadian steelmaker Stelco. The two parties settled the
matter last December.
The government now plans to urge foreign investors to comply
with their undertakings by collecting a security deposit. The
deposit will be used to pay penalties ordered by a court for
contraventions of the Investment Canada Act.
While the security deposit will be voluntary, Borgers notes
that any foreign investor, keen on an acquisition within Canada,
will be hard pressed to refuse the government if they are keen
to win an approval.
"The question of offering or not is a bit of a misnomer,"
said Borgers. "It's like saying make me an offer that I can't