Canada’s industry minister has given himself an extra month to review mining giant BHP Billiton’s proposed takeover bid for PotashCorp.
Tony Clement said in a prepared statement Monday he plans to “take the time necessary to do a thorough review of this investment proposal.”
The Investment Canada Act allows the minister to extend by 30 days the initial 45-day period to make his or her determination on a proposed foreign investment in a Canadian business, Clement said.
Clement’s extension follows the release Monday of another review, prepared by the Conference Board of Canada for the Saskatchewan government, looking at the potential effects of a successful PotashCorp takeover, whether by Australia’s Billiton or by any other suitors.
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The Conference Board’s report will be considered in the “coming days” as the province prepares its own views on the proposed deal, for submission to Clement’s department, provincial Resources Minister Bill Boyd said in a separate release Monday.
Not surprisingly, the board’s report recommends that the province ask Ottawa to attach “two associated undertakings” as conditions of federal approval of a PotashCorp bid: namely, that the buyer set up its global potash headquarters in the province, and that the buyer’s potash CEO and other senior potash executives be required to also live in Saskatchewan.
The Conference Board’s report predicts PotashCorp, if it were ever acquired, would most likely go to an “industry suitor” such as Billiton, and “less likely” to a potash consumer such as China’s state-owned Sinochem, which has also been discussed as a potential suitor but has yet to mount its own bid.
And while financiers such as sovereign wealth funds, equity funds or pension plans might take a supporting role in other players’ bids, the Conference Board says it’s “unlikely” any of them would take the lead in a bid.
Looking specifically at Billiton, the Conference Board said it saw “few negative takeover effects,” as Billiton has already declared it would set up its global potash headquarters in Saskatoon and has already invested about $1 billion in its own planned potash mining project at Jansen Lake, Sask., about 120 km east of the city.
In terms of the potential effect on potash prices, and thus on the province’s resource revenue, Billiton would be “more likely (to) show market discipline that would allow it to justify the acquisition premium it will pay” for PotashCorp, the board said.
But if a state-owned enterprise such as Sinochem controlled PotashCorp, the board warned, it would be more likely to “ignore market discipline and compete for market share through higher volumes and lower prices.”
Generally, the board wrote, most of the benefits to the province from a PotashCorp takeover would come through applying a “sensible resource policy” that allows it to benefit from ongoing investment and employment while gaining a strong return from high potash prices.
“In particular, the province may want to consider making the impact of capital expenditures on potash royalties project-specific, rather than company-specific.”
“Waste of time”
“There are both pluses and minuses to this BHP bid,” Boyd said Monday. “This report will help to inform our view of whether an ownership change represents a ‘net benefit’ to Canada and to the people of Saskatchewan.”
The province’s NDP opposition, however, ripped into the Conference Board’s report Monday as “an incredible waste of time and Saskatchewan taxpayers’ money.”
NDP leader Dwain Lingenfelter said the report “failed to provide specific terms and conditions that Saskatchewan should place on this proposed foreign takeover beyond what was proposed publicly by the NDP weeks ago or what has already been publicly pledged by BHP Billiton itself.”
The report, he said, “shuts out the people of Saskatchewan… from having a direct say on how they want their potash mined, processed and sold in the future.”
PotashCorp itself, which continues to oppose Billiton’s bid, said Tuesday it feels the Conference Board report “understated” the potential revenue loss to the province if Billiton’s bid succeeds, as the report “chose to assume that BHP would not operate full-out in direct contradiction of previous BHP public statements.”
PotashCorp said Tuesday it has told the Conference Board of Canada that any potential suitor should be required to support the sale of offshore potash through Canpotex and support the “continued profit maximization strategies” PotashCorp is now undertaking.
“The company believes and told the Conference Board that such assurances would be integral to any alternative expressions of interest,” PotashCorp said Tuesday, but added that the Conference Board “chose to ignore PotashCorp’s position in its report.”
Noting Clement’s 30-day extension of his review, PotashCorp said it “looks forward” to Investment Canada’s assessment of whether a Billiton takeover of PotashCorp would comply with “applicable Canadian law and federal government policies.”
