BHP’s Bid For PotashCorp Tough Call For Government

Canada’s Conservative government will put its pro-business reputation on the line when it decides whether to let a foreign firm buy up resource giant PotashCorp, and Ottawa will win enemies whichever way it turns.

If it says yes it will alienate supporters in the western province of Saskatchewan, whose right-leaning government both backs the federal Conservatives and opposes the bid for provincial- based PotashCorp from Anglo-Australian miner BHP Billiton.

But if it says no, arguing that the takeover won’t be of net benefit to Canada in terms of jobs, investment and revenues, it will annoy a business community that insists Canada must be open to foreign business to survive.

Industry Minister Tony Clement has until Nov. 3 to decide whether to approve BHP’s hostile $39-billion offer or whether to use the Investment Canada Act to veto the proposal, the largest global takeover of 2010.

“It’s difficult to see how the federal government can suddenly invoke Inves tment Canada to reject this,” Professor Laurence Booth at the University of Toronto’s Rotman School of Management said, referring to legislation that provides the framework for Canada to accept or reject a foreign bid.

“It comes down really to a political question … it’s a tricky one,” he told Reuters.

And while there is discontent at the “hollowing out” of Canada, vetoing a deal could go against the grain for a Conservative government that has cut corporate taxes, tried to reduce red tape for business and stressed the need to avoid protectionism since it came to power in 2006.

“We should … have one eye very much on our international reputation, on the rules we want other countries to play by when we are the buyer,” former federal industry minister John Manley, now chairman of the Canadian Council of Chief Executives, told Business News Network.

But Prime Minister Stephen Harper has only a minority government and needs the support from voters in Saskatchewan, where the Conservatives hold 13 of the 14 parliamentary seats.

Even losing a few seats could make the difference between keeping or losing power after an elect ion expected next year.

Saskatchewan Premier Brad Wall wants Ottawa to block the bid, saying it could hurt jobs and revenues, and theRegina Leader-Postsaid Wall had made the right decision because there was no guarantee BHP would live up to the commitments it might make to secure approval.

Decision-maker Clement is keeping his options open.

“We have noted Saskatchewan’s position and we have noted the bidder’s position, and we are in the process of deliberations,” he said Oct. 22, promising only that the federal government would do “our own analysis” on the issue.

No Canadian government has ever blocked the foreign takeover of a resource firm. Brian Kelleher Richter, assistant professor at the Richard Ivey School of Business, said the economics of the proposed deal were straightforward.

“The resource is in the ground in Canada and this is where the mining is occurring. So it’s hard to see how who owns the rights to mine in the ground has really any impact on Canadian jobs,” he said.

“If the true criteria is that there has to be a net economic benefit to Canada, and if BHP is willing to pay more than it was worth before … then nothing has changed other than the ownership.”

Critics noted management and labour problems at other resource firms taken over by foreigners.

“Why would we allow (Potash) to be sold? … My betting would be that (the bid) is going to be denied federally,” Jim Gillies, professor emeritus at York University’s Schulich School of Business, told BNN.

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