Analysis: Canada blocks Potash bid, what would it do for RIM?

TORONTO (Reuters) - Research In Motion’s ubiquitous BlackBerry is a source of pride in Canada, a symbol of technological success, and a prize others may covet one day.

But Ottawa’s market-rattling decision to block a major takeover attempt -- BHP Billiton’s $39 billion bid for fertilizer giant Potash Corp -- poses questions on what would happen if someone bid for RIM, Canada’s 14th largest company, with a market capitalization of about $30 billion.

“I don’t think we can ... try to defend RIM from foreign avarice. It wouldn’t be doing a favor to RIM nor to the country,” Iain Grant from telecom consultancy SeaBoard Group said of a hypothetical offer for the BlackBerry maker.

But others said Canada’s decision to block BHP’s Potash bid could make Ottawa more likely to veto any takeover of RIM, given that the Investment Canada Act, which says buyouts must be of net benefit to Canada, names technological development as a factor to watch.

“The Investment Canada Act has set out, in the statute itself, factors that go into this determination of net benefit to Canada, but it doesn’t tell you how you are supposed to weigh the various factors,” said a Toronto-based lawyer specializing in foreign investments.

“It’s open to a lot of interpretation by the (industry) minster,” the lawyer said.

Industry Minister Tony Clement, in an interview with Reuters, declined to speculate on how he might react to a bid for RIM -- if one ever emerged.

“We do want to be an innovative economy and an innovative society so that’s obviously one of the grounds I would have to consider in any future case,” Clement said.

Clement also made clear he was looking at changes to the Investment Canada Act, making what has been an opaque process more transparent.


Speculation about a possible bid for RIM has swirled repeatedly as the company’s share price struggles to breach $60 in the face of aggressive smartphone competition from the likes of Apple and Google. In 2008, before the financial meltdown, the stock was at around $145.

But the price tag -- maybe up to $50 billion -- remains a big hurdle for all but the most flush tech majors.

“The list isn’t very long because there’s not very many that can pay for something as big as RIM,” said Matt Robison, an analyst from Wunderlich Securities.

Kaufmann Bros analyst Shaw Wu said last week that potential suitors could include network equipment maker Cisco Systems Inc, or software giants Microsoft Corp and Oracle Corp.

“The government of Canada is a hurdle that has to be crossed,” he said on Thursday, after the Potash rejection.

Grant and other analysts cited the collapse and selloff of one-time Canadian tech darling Nortel, long seen as a strategic technology resource, as more of a precedent-setting example for RIM than Potash.

The Potash rejection was widely seen as a political decision rather than a turn toward protectionism. But it also showed the rules are flexible enough to allow a federal government to appease a provincial one under the guise of economic concerns.

For Nortel, by contrast, the government allowed the bankrupt company to be broken up and sold piecemeal to foreign buyers, even as RIM tried to argue that Canada was letting its own technology fall into foreign hands.

RIM employs 14,000 people, with at least half of those based in Canada. It paid $809 million in Canadian taxes in fiscal 2010 and made a net profit of $2.46 billion.

But while Potash’s mines are stuck in Saskatchewan, RIM’s jobs are more mobile, which could be another factor to consider under the Canadian legislation.

“With a tech company, the jobs could disappear pretty quickly; they could relocate these people elsewhere,” the Toronto lawyer said.

Additional reporting by David Ljunggren in Ottawa; editing by Janet Guttsman and Rob Wilson