Law Times

PAGE 2 NEWS September 7, 2010 • Law timeS BHP bid for Potash a test of foreign-investment rules B BY JULIUS MELNITZER For Law Times HP Billiton Ltd. will have to do more than convince the Potash Corp. of Sas- katchewan Inc.'s board and shareholders that its US$40-bil- lion hostile bid for the company is palatable. It will also need to convince the federal, Saskatch- ewan, and New Brunswick gov- ernments that its acquisition is likely to be of net benefit to Canada, as required by the In- vestment Canada Act. "Although only the federal government must formally give its approval, it won't proceed over the objections of the affected provinces," says Kevin Ackhurst of Ogilvy Renault LLP. Direct acquisition of Canadi- an businesses other than cultural enterprises are subject to review if the enterprise value of the tar- get's assets exceeds $600 million, a number that rises gradually to an annually adjusted $1 billion five years hence. There's no is- sue that Potash Corp. meets that threshold. The first signs that takeovers of Canadian companies would become a political football oc- curred in 2004, when a public outcry scuttled China Minmetals Corp.'s interest in buying Noran- da Inc. But it was in early 2008 when observers detected a shift in the federal government's attitude to foreign investment. It came when cabinet blocked the proposed $1.3-billion ac- quisition of the space technol- ogy division of Vancouver-based MacDonald Dettwiler and Asso- ciates Ltd. (MDA) by Minneso- ta-based arms manufacturer and U.S. defence contractor Alliant Techsystems Inc. The decision was unprecedented inasmuch as the federal government had ap- proved every other review that had taken place since the legisla- tion's enactment in 1985. MDA, however, may have been a special case as its space Any serious bidder for Potash Corp. 'will have a lot of issues to address,' says Sandra Walker. division developed the iconic Canadarm, a source of national pride for Canadians. The com- pany also developed and owns a unique satellite technology considered essential in protect- ing Canada's sovereignty, par- ticularly over Arctic waters. However that may be, BHP and any other aspiring suitor for Potash Corp. will bear the burden of meeting the net-benefit test. "Any non-Canadian investor will have to put together a set of business plans to demonstrate to the minister that the transac- tion is likely to be of net ben- efit to Canada," Ackhurst says. "What that boils down to is the transaction's impact on employ- ment in Canada; the degree of participation in senior manage- ment by Canadians going for- ward; how the investor plans to grow the business; the level of projected capital expenditures that will support employment prospects and contribute to the economy generally; and wheth- er the transaction will lead to increases in exports and sales." Under the act, the industry minister has 45 days to make a decision, a timeline subject to a 30-day extension as of right. "I'd expect a transaction of this magnitude would take most of the full 75 days," Ackhurst says, adding the process could take longer. "The government can ask for a further extension, and in practical terms the applicant has no choice but to consent because otherwise the government will simply deny the application. But on the whole, this government has shown that it is pro-invest- ment and will do its best to meet commercial deadlines." From all appearances, BHP is doing its homework. "The dog whistle is in the press release, which makes ref- erence to the net-benefit issue," Ackhurst says. Most telling are BHP's promises to establish the potash business in Canada; situ- ate the president and manage- ment in Saskatchewan; and put a Canadian on its board. "BHP is reaching out to the relevant federal and provincial authori- ties and engaging in an effective public relations campaign," Ack- hurst says. "That's something Er- icsson did very successfully when it acquired Nortel assets." So far, Saskatchewan Premier A refreshing new combination Brad Wall has signaled he doesn't object to BHP's purchase. "Saskatchewan is pretty easy- going when it comes to these kinds of resource deals," Ack- hurst says. Employment Spectrum is an online research service that integrates leading authored works with case law and legislation with functionality that is practical and easy to use. It also includes a Dismissal Notice Periods search, which matches your search criteria with relevant notice period results and includes the full-text decisions. Commentary includes: • Canadian Employment Law - • Canadian Health and Safety Law: A Comprehensive Guide to the Statutes, Policies and Case Law - • Dismissal and Employment Law Digest - • Employee Obligations in Canada - • The Employment Bulletin: Legal Issues in the Workplace • Illness and Disability in the Workplace: How to Navigate Through the Legal Minefi eld - • The Law of Dismissal in Canada, Third Edition - A classifi cation scheme, topical indices and a citator, all make research easier. It also includes PDFs of both reported and unreported decisions. Contact your Account Manager today at 1-800-263-2037 to arrange for a free trial and for pricing information. Although the transaction is generating a great deal of public interest, lawyers familiar with the act don't expect it to be a deal breaker. "There may be greater political sensitivity on this than on some of the others that have been ap- proved," says Sandra Walker of Fraser Milner Casgrain LLP. "But I don't think the sensitivity will stop the transaction. It's just that any serious bidder will have a lot of issues to address." What's also clear is that the federal government is serious about holding foreign investors to their promises. Under the act, the minister can take into ac- count any promises offered by in- vestors to enhance the benefit to Canada when deciding whether to approve an application. Such promises or undertakings are binding commitments. In June, the Canadian gov- ernment won the first round in its battle to hold foreign buyers to the promises they make while seeking approval to take over a domestic company when the Federal Court released its deci- sion in Canada (Attorney General) v. United States Steel Corp. The suit against U.S. Steel canadalawbook.ca www.lawtimesnews.com Canada Law Book, a Thomson Reuters business marked the first time the Ca- nadian government had taken a company to court under the act's enforcement provisions. The government alleged U.S. Steel had contravened promises to maintain employment and productivity levels at its Ontario plants. While the wording of the undertakings by U.S. Steel may cause problems for the govern- ment at trial, Industry Minister Tony Clement has made it clear his officials have learned from past cases and are determined to make undertakings through the act airtight in the future. LT S t ace y R eginald Ballman A N or or Edit -in-Chiefea Andr . K James A Ho w ar d A . Le vitt Br osman, Gr ian Gr (Gr osman, Q.C. and N at eit osman & Gale LLP) alie C. Macdonald Andr . D' Ho ea James A . D' w ar h d A . Le vitt

• Cover
• Art Reflecting Life
• Stingy Remedies
• Focus On Class Actions