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The ghost of BHP Billiton's (BHP-N) $39-billion US offer for PotashCorp will haunt Ottawa until it has clear rules on foreign takeovers and can persuade investors that a pro-business reputation remains intact.
Canada, which blocked the bid last Wednesday, said BHP lacked experience in potash mining and had not put forward a compelling case that its offer would be a net benefit to Canada. The Anglo-Australian miner withdrew its bid on Monday.
"The fallout from this from a foreign investment perspective can be limited if clear guidelines on foreign investment are pronounced in short order by the government," said Darryl Levitt, a lawyer with Macleod Dixon in Toronto.
The deal would have been the largest takeover this year, and would have handed control of much of the world's potash to BHP, already the world's largest mining firm.
The crop nutrient has risen to prominence in recent months with concerns about rising global food demand, and
Saskatchewan-based PotashCorp was a prime target. The company said repeatedly that the $130-a-share offer was too low.
Critics say Ottawa's decision to block the bid raised the bar for other foreign investors considering buyouts of large Canadian companies, and created uncertainty around Canada's traditionally pro-business regulatory environment.
"There is no question, Canada has made it tougher for foreign companies to acquire its natural resources," said
Edlain Rodriguez, an analyst with Gleacher & Company Chemicals Research.
In a hastily assembled news conference on Sunday evening, Industry Minister Tony Clement outlined some of the reasons he rejected the bid for PotashCorp.
He also promised more clarity about how foreign takeover bids are assessed under the Investment Canada Act, which says big takeovers must show a "net benefit" for Canada.
"In the days ahead I will be sharing more details with Canadians on how I will henceforth interpret the net benefit factors found in the act," Clement said.
"I know that both potential foreign investors and Canadian enterprises are seeking greater clarity in this regard."
Competition lawyers said blocking the offer would not set a precedent for Canada, but they expect investors to question what other companies could be viewed as strategic.
Names like Research In Motion, maker of the BlackBerry smartphone, and Bombardier Inc., the world's third-largest civil aircraft maker, are whispered as ones Canada would protect if a foreign bidder emerged.
Industry Canada has reviewed and approved 1,637 foreign acquisitions since the Investment Canada Act was passed in 1985. Until the BHP bid, it had blocked only one.
"I think they are going to have to put some meat on the bones of that commitment to review the legislation," said Huy Do, a partner and expert in competition law and foreign investment for Fasken Martineau, a leading Canadian corporate law firm.
"The problem is the uncertainty has already been sowed in the marketplace. So everyone looks at it and says, well, what is happening."
Clement insisted he had sound business reasons to block the bid, but the decision clearly had political implications too.
The Hill Times, a weekly newspaper that covers Canadian parliamentary affairs, said on Monday that the government reversed an initial decision to approve the deal after intense lobbying from Conservative parliamentarians from Saskatchewan.
Since the deal was blocked, shares of Potash have fallen, down from highs of $153 in August after BHP made its takeover offer and down from around $145 last Wednesday.