M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Tuesday, October 12, 2010

A Canadian cargo cult?

The local community reaction to a potential acquisition is sometimes a matter of great importance.  That's particularly true where governmental authorities will eventually be required to pass on the proposed deal.  Such is apparently the case in Canada where the Potash/BHP fight is heating up.  BHP has responded in part by throwing cash out of the back of a cargo plane.(WSJ):

Last week, BHP said it will sponsor Saskatoon's holiday light show, at a cost of 300,000 Canadian dollars ($296,000) over three years. That commitment follows the splash BHP made earlier this year—before launching its takeover plans—when it spent an undisclosed amount to sponsor the International Ice Hockey Federation's World Junior Championship in the city.

Sponsoring a hockey championship in Canada?  BHP is going all in.  Potash was having none that: 

A day after BHP announced its sponsorship of the light show, Potash Corp. shot back, pledging to spend C$5 million to refurbish Kinsmen Park in the city's center.

All of this because Canada requires provincial government officials to offer an opinion whether they believe the proposed transaction will be a "net benefit" to the community before the federal government signs off on acquisitions by foreign acquirers under Canada's Foreign Direct Investment Review Act:

The Investment Canada Act is intended to ensure that all foreign direct investment in Canada provides a net benefit to the country.  However, the Act does not specify what constitutes a “net benefit.”  It is up to the industry minister to make that decision, giving consideration to the following factors:

    1. the effect of the investment on the level of economic activity in Canada, employment, resource processing, utilization of parts and services produced in Canada, and exports from Canada;
    2. the degree and significance of participation by Canadians in the Canadian business or new Canadian business and in any industry or industries in Canada;
    3. the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada;
    4. the effect of the investment on competition within any industry in Canada;
    5. the compatibility of the investment with national industrial, economic and cultural policies; and
    6. the contribution of the investment to Canada’s ability to compete in world markets.

If, in the minister’s view, a proposed investment is unsatisfactory in any of these areas, it can be rejected.  As of 30 June 2007, there have been 12,342 applications to acquire Canadian businesses, and 3,652 applications to start new businesses in Canada, since the Act came into effect.  Of the foreign acquisitions of Canadian companies, 1,545 were of sufficient size to trigger a review under the Act.  To date no investments have been rejected under the Investment Canada Act.

So, until the minister of industry gives an opinion if you find yourself up in Saskatoon, watch out for falling cargo pallets!





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