* Canada still seen open to foreign takeovers
* Resource sector merger approvals seen as key
By Euan Rocha and Pav Jordan
TORONTO, April 10 Two blocked foreign takeover
deals and the possibility of a third do not mean that Canada is
closed for business, with the real test coming in how it
responds to would-be deals in the crucial resource sector.
Bankers said the two deals that Canada vetoed -- an attempt
to buy fertilizer giant Potash Corp (POT.TO) and a bid for the
satellite technology unit of Macdonald Dettwiler (MDA.TO) --
were rejected for very specific reasons.
And there's no reason for major concern even if Canada
blocks a third big deal, the proposed C$3 billion ($3.1
billion) takeover of Canada's leading exchange operator, TMX
Group (X.TO), by the London Stock Exchange (LSE.L).
"We've had two transactions turned down, MacDonald
Dettwiler and Potash Corp, and they were very fact specific,"
Scotia Capital's head of M&A John Tuer told Reuters. "I don't
see it as a trend."
"The TMX-LSE transaction, obviously there are some issues,"
he added. "There are financial infrastructure considerations
and regulations considerations, and whether or not that deal
gets approved I don't see it as a longer or broader trend
The deal would create a $7 billion transatlantic exchange
trading $4 trillion a year, but critics say it would shift
control of Canada's capital markets to a holding company in
Analysts give the deal less than a 50 percent chance of
passing regulatory muster in a complicated approval process
that will also involve Canadian provinces and regulators.
Canadian law gives the federal government the right to veto
foreign bids over a certain size they are not of net benefit to
Canada, a term that has not yet been clearly defined.
And with a stock market that's heavily weighted toward
resource companies, bankers say the test of Canada's
pro-business mettle will come in how it deals with foreign bids
for domestic natural resource companies
Resource-heavy Canada is home to almost 60 percent of the
world's publicly listed mining companies, with more than 1,500
mining firms listed on the Toronto Stock Exchange and the TSX
Many of those companies have assets across the globe. That
is the case with Equinox Minerals EQN.TO, which faces an
unsolicited C$6.3 billion takeover bid from Chinese metals
trading firm Minmetals (1208.HK).
The majority of Equinox's board is based in Canada, but its
chief executive is based in Australia and its assets are spread
across Africa and the Middle East.
"I don't think they could have picked a better target, or
timing to try a hostile bid and see what the reaction is," said
Scotia's Tuer. "As a test case for them, it's about as good a
fact-set as you could have," he said.
The bid is unlikely to face major regulatory hurdles, given
the fact that Equinox doesn't actually operate in Canada.
Investment Canada is reviewing PetroChina's (PTR.N) $5.4
billion acquisition of half of Encana Corp's (ECA.TO) Cutbank
Ridge shale gas properties in British Columbia, the biggest
foreign gas deal yet for a state-controlled Chinese company.
The 45-day review period was to expire this week, but has
been extended for another 30 days.
Canadian Prime Minister Stephen Harper set the cat among
the pigeons last week, when he said he would be worried if a
Chinese state-owned enterprise bid for a Canadian resource
company and the offer did not appear to have commercial aims.
Harper, speaking on the campaign trail ahead of the May 2
federal election, said he was not referring to any particular
transaction, and he did not say what he meant by non-commercial
"To the extent that certain jurisdictions are protectionist,
it may come to pass that Canada looks more carefully at
investments, or bids by companies from that jurisdiction," said
Andre Hidi, M&A head at BMO Capital Markets.
Other experts also caution that protectionism in Canada and
elsewhere could provoke protectionist reaction.
"Until the Potash deal came up, Canada could always say,
hey, we don't turn down transactions, we allow globalization,
we allow free trade," said John Gravelle, national mining
leader at PwC.
"Now, I think, other countries can look at Canada and they
can say, 'who are you to tell me that I can't stop a
transaction in my country, look at what Canada just did'."
(Additional reporting by Jeffrey Jones and Solarina Ho;
editing by Peter Galloway)