A hostile takeover bid for PotashCorp by one of the world’s biggest mining firms will not get the blessing of the Saskatchewan government.
Premier Brad Wall on Thursday made official a position that’s become clear over the past couple of weeks: that Australian mining firm BHP Billiton’s bid “does not provide a ‘net benefit’ to the people of Saskatchewan and Canada.”
The province’s position, and that of its conservative Saskatchewan Party government, is expected to carry weight with the federal government as it makes its own decision about allowing BHP’s takeover.
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Federal Industry Minister Tony Clement on Oct. 4 gave himself an extra 30 days to make his determination on a proposed foreign investment in a Canadian business, as per the Investment Canada Act.
Wall’s announcement also follows the Oct. 4 release of a review the province commissioned from the Conference Board of Canada, which said it saw “few negative takeover effects,” as Billiton has already declared it would set up its global potash headquarters in PotashCorp’s home city of Saskatoon.
Billiton also has already put about $1 billion into its own planned potash mining project at Jansen Lake, Sask., about 120 km east of the city.
And 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 Conference Board said.
Launched in mid-August, BHP’s bid — the only firm offer so far from it or any other would-be suitor — is US$130 per share, or about $38.6 billion (all figures US$).
BHP has estimated it will need about $43 billion in total to “consummate” its offer, including any funds required to repay or refinance PotashCorp debt if need be.
And PotashCorp’s board has rejected that offer as “grossly inadequate” and “aggressive attempt to acquire (PotashCorp) for significantly less than its intrinsic value.”
“Serious concern”
All that said, “BHP Billiton’s public statements about Canpotex and about operating at full production create serious concern about the future of Canpotex,” Wall said Thursday, referring to the export marketing company for the three primary producers of Saskatchewan potash, namely PotashCorp, Agrium and Mosaic.
If the price of potash is pressured downward by running PotashCorp’s facilities at full capacity, thus working against Canpotex’s “market discipline,” a BHP takeover would thus mean a “significant loss in provincial revenues that are needed to fund roads, schools and hospitals,” the province said in a release.
Resource revenue from the province’s potash sector “is also needed to keep our tax levels competitive for other businesses and for Saskatchewan families,” Wall said.
Any PotashCorp owner proposing a high-volume, low-price business plan for the province’s potash resource also “puts $6 billion worth of capital expansion and thousands of jobs at risk,” Wall said.
Furthermore, he said, the proposed takeover also puts at risk a “strategic natural resource.”
“The people of Saskatchewan are justifiably proud of PotashCorp and the success it has achieved here and around the world,” Wall said. “Do we want to add PotashCorp to that list of once-proud Canadian companies that are now under foreign control?”
The province said it’s also concerned about the ability of federal authorities to enforce restrictions, should approval be granted with specific conditions.
“In the past decade, promises about maintaining jobs, corporate headquarters and future investment have all been broken,” Wall said. “We simply cannot take that risk with this valuable resource that belongs to the people of Saskatchewan.”
As a precedent, Wall cited Shell’s $10 billion bid in 2001 for “a controlling stake in the leading company developing Australia’s offshore natural gas reserves.” The Australian government’s answer “was also ‘no’,” he said.
Wall quoted Australia’s then-treasurer Peter Costello as saying it was in the country’s best interests to have these offshore reserves to be “unequivocally managed, operated and marketed for Australia.”
“Holding the bag”
In a separate release Thursday following Wall’s statement, federal New Democrat leader Jack Layton urged the Conservative federal government to “listen to the people of Saskatchewan” and reject BHP’s proposal.
“Even Premier Brad Wall — a conservative ally of the Harper government — agrees with the NDP and is flatly opposed to this deal,” Layton said. “Why? Because even he recognizes ideology takes a backseat to basic math. And the numbers here don’t add up for Canadians.”
“If Stephen Harper ignores Saskatchewan and approves the takeover of PotashCorp, who will pay the bill when the conditions aren’t enforced?” Regina-area Liberal MP and former federal ag minister Ralph Goodale said in a separate release.
“If this deal is allowed to go ahead, Saskatchewan needs assurances that it will not be left holding the bag for any negative consequences if Ottawa’s decision goes sideways.”
Recent foreign takeover deals in the resource and manufacturing sectors have damaged industries and communities, Goodale said, and “in each case, the terms of the agreements were never made public and have proven to be unenforceable.”
PotashCorp itself, meanwhile, issued a statement Thursday thanking the provincial government for a “thorough and thoughtful review of this matter.”
Without making direct reference to Prime Minister Stephen Harper’s comment Wednesday in the House of Commons, in which he described BHP’s bid as “a proposal for an American-controlled company to be taken over by an Australian-controlled company,” PotashCorp in its statement described itself as “proudly carry(ing) the flags of Saskatchewan and Canada, building a global leader in the fertilizer industry from deep and enduring Saskatchewan roots.”
