Canada Open to Changing Foreign-Takeover Law, Paradis Says

Dec. 2 (Bloomberg) -- Canada is open to changing its law governing foreign takeovers to provide more “certainty” to companies considering purchases of Canadian firms, Industry Minister Christian Paradis said.

The federal government reviews foreign acquisitions of companies with assets valued at more than C$312 million ($306 million) under the Investment Canada Act, and can reject transactions that don’t provide a “net benefit” to Canada.

“We are always open to improving the regime,” Paradis said today in an interview in New York, where he met with U.S. company executives and investors. “If there are some things we can do to better address this and provide certainty, we will certainly be happy to look into it.”

Paradis’ remarks come amid calls for changes to Canada’s review process that would make it more transparent. The government last year rejected a proposed $40-billion hostile bid for fertilizer maker Potash Corp. of Saskatchewan Inc. by Australia-based BHP Billiton Ltd.

It was the second time in two years Conservative Prime Minister Stephen Harper’s government blocked a foreign acquisition. In 2008, the government rejected a bid by Minneapolis based Alliant Techsystems Inc. to acquire the aerospace division of Vancouver-based MacDonald, Dettwiler and Associates Ltd. Canada hadn’t previously rejected a foreign acquisition since the Investment Canada Act took effect in 1985.

Harper told Bloomberg News in a Sept. 21 interview that Canada will “proceed with caution” as it considers allowing more foreign takeovers, wanting to ensure they don’t lead to a loss of head office jobs or declining industry leadership.

‘Solid Regime’
Paradis called the existing system a “solid regime” that has worked well. “Our record shows that we’re open to foreign investment,” said Paradis, 37, who took over as industry minister May 18.

Canada’s system for weighing takeovers based on “net benefit” is “highly subjective and unpredictable,” the Toronto-based C.D. Howe Institute said in a study released yesterday. The system, which is more restrictive than in countries such as Australia, may have contributed to the decline in Canada’s share of global foreign-direct investment over the last 30 years, said Philippe Bergevin and Daniel Schwanen, the study’s authors.

Foreign investors must provide evidence to prove their acquisition represents a “net benefit” to Canada, which the industry department evaluates based on factors including impact on employment, productivity and competition, according to the department’s website.

Reverse Onus

Information provided by companies is protected by “very rigid” confidentiality provisions meant to make the process more efficient, the department says.

Rather than putting the onus on companies, the federal government should have to prove that takeovers aren’t in the national interest, and disclose reasons for rejecting a transaction, the C.D. Howe study recommended.

Paradis said the government will make a decision “sooner than later” on whether to loosen foreign-ownership restrictions in Canada’s telecommunications sector. The government is also developing the ground rules for an auction of wireless spectrum that may invite bids from companies such as BCE Inc., Telus Corp. and Rogers Communications Inc.

“We want to move quick on this but we want to move correctly,” said Paradis.

The minister called Research in Motion Inc. a “flagship” company that the government wants to ensure has “all the tools it needs” to succeed. He declined to say if RIM, which some investors have said should be broken up or sold, would be considered off limits to a foreign takeover.

http://www.businessweek.com/news/2011-12-03/canada-open-to-changing-foreign-takeover-law-paradis-says.html