Oct 21 The province of Saskatchewan on Thursday
urged Canada to block BHP Billiton's (BHP.AX) C$39 billion
($38.2 billion) hostile bid for Potash Corp (POT.TO), leaving
the Conservative federal government to decide whether to let
the bid for the world's largest fertilizer supplier proceed.
WHAT IS THE GOVERNMENT OBLIGED TO DO?
Under the 1985 Investment Canada Act, the government has to
review any proposed foreign takeover of a Canadian company
worth more than C$299 million to determine if the deal would be
of net benefit to Canada. Industry Minister Tony Clement has
already extended the initial 45-day review period by 30 days to
Nov 3. He can extend the review for another 30 days with the
permission of BHP. If Clement rules against BHP, the company
then has the option of altering its bid.
WHY IS THE BID A CHALLENGE FOR THE GOVERNMENT?
The Conservatives, who only have a minority of seats in the
House of Commons, face an election many expect to be held in
the first half of next year. The party is only narrowly ahead
of its rivals in the polls and if Ottawa mishandles the Potash
issue it could cut the Conservatives' popularity, and
conceivably help lead to their defeat.
Blocking the bid would undermine the Conservatives'
reputation for being a pro-business party. If they let it go
ahead, critics will accuse them of allowing corporate Canada to
be hollowed out. Letting BHP buy Potash could also hurt
Conservatives support in Saskatchewan, where Potash has one of
its two head offices and most of its mines. The Conservatives
hold 13 of the 14 Saskatchewan seats in the House of Commons.
WHY MIGHT OTTAWA RULE IN FAVOR OF THE BID?
The Conservatives came to power in early 2006 stressing a
pro-business agenda. The government has cut corporate taxes,
moved to cut red tape and regularly warns against protectionist
Canadian Prime Minister Stephen Harper said on Wednesday
the bid was "a proposal for an American-controlled company to
be taken over by an Australian-controlled company" -- remarks
that some construed as a hint Ottawa would rule in favor.
Government officials pointed out that Potash Corp has a head
office in Chicago and the chief executive and nine of 15 senior
executives are American. They said 51 percent of shares are
held by foreigners, with 38 percent in American hands.
Federal opposition parties, as well as the Saskatchewan
government, say they consider Potash to be a Canadian firm.
WHY MIGHT OTTAWA RULE AGAINST THE BID?
Saskatchewan and opposition parties say Potash Corp is too
valuable to be sold to outsiders and point to other contentious
foreign takeovers the government approved. Canada is suing US
Steel (X.N) for breaking production and employment promises
made when it bought Canadian steelmaker Stelco in 2007.
As part of the net benefit test, Clement must consider the
potential effect on the economy, employment, exports, product
innovation and Canada's ability to compete in world markets.
Clement can veto the bid if he concludes it would harm national
security -- the reason Canada gave in 2008 when it prevented
MacDonald Dettwiler and Associates Ltd (MDA.TO) from selling
sensitive satellite technology to a U.S. company.
Clement said on Wednesday that the previous Liberal
government had approved every single foreign takeover of a
Canadian company that it had reviewed. "We turned down a bid
and we have gone to court to enforce the Investment Canada
Act," he said.
WHAT ARE THE POLITICAL DANGERS OF ALLOWING THE BID?
If the government approves the bid it could damage the
right-leaning Saskatchewan Party government in Saskatchewan,
which is facing an election next year. The Conservatives have
good ties with the Saskatchewan government.
In the 2008 election, most federal Conservative legislators
won their Saskatchewan seats with large majorities. That said,
Member of Parliament Kelly Block sneaked in by 262 votes and if
the public mood soured, she and at least two others could lose
their seats. This could hurt the Conservatives, who could also
lose at least half a dozen seats in French-speaking Quebec.
Dropping nine or 10 seats could make the difference between
keeping or losing power.
(Reporting by David Ljunggren; editing by Peter Galloway)