The Canadian government has decided to block the takeover the Potash Corporation of Saskatchewan by the Australian company BHP. Potash is used to make fertilizer, you can find lots of information from any major news source. The premier of Saksatchewan made a special visit to Ottawa to make sure that the sale of the company was blocked. You see, the provincial governments have the power to regulate and tax resources in each province but only the federal government has the power to block the sale of a private company to a foreign interest. And they did. They stopped that sale cold. Last I heard the offers for the hostile takeover were far below the market price for the shares and way below the peak of the company’s shares before the all the badness in 2008. The numbers we are talking are something along the lines of $135 offered, $145current value and over $200 peak. These are all numbers I am just pulling from memory at the moment but I can assure you they are close to the real figures. So the offer that was on the table was blocked by the government before it could even be rejected by shareholders, which I am guessing it would have been.
Wait, did I say shareholders? Why yes I did. You know shareholders, the people that own the company. I guess you see where I am going with this. It is not for the government to decide if a company should be sold to a foreign interest or not, it is up the owner(s) of that company. Canada needs to decide what kind of economy we are running here. Are our markets open to foreign investment or not? We can’t start picking and choosing deals at random. If we are going to be protectionist then we need to set up some guidelines. The reason given for blocking this sale was that it was not a net benefit to Canada. Sorry, it seems to be popular to write it “net benefit” to make sure that it is clear that not a single journalist knows what the hell that means anymore that you or I. There was a lot of debate on the issue and the most common objections I read were:
– Loss of tax revenue
– Loss of jobs (this is totally invalid since the mineral still needs to be extracted here, it’s not an IT company)
– It is a strategic resource.
There has not really been much elaboration on any of these points but most have pretty automatic arguments built in. Sorry, I forgot the big one. This is not a net benefit to Canada.
Are they saying that the bid wasn’t high enough? Did they do a cost benefit analysis and one outweighed the other? They must have. What would push the benefits over the tipping point for them to allow this type of sale? Are there different levels of net benefit for a natural resource versus say a car company or a technology company? Does the percentage of the world’s supply that we own play a factor? Why potash and not oil, nickel or any other resources? These are all things that we need to answer.
I would like to take a trip back to a subject that was popular in June. G20 summit, I wrote about it then so please go read that post too. At the conclusion of any major summit of this nature there is a declaration released from all of the countries that attend. Toronto was no different. I think I linked to it in the past but here it is again.
I would like to draw attention to the portion of the document starting at section 35 (page 7 in the PDF). This is the section entitled “Fighting Protectionism and Promoting Trade and Investment”. Now I realize that the guy that had to type up this document, me, and a few journalists that were forced are the only people that read this release but we really need to think about what it says and what it means for our policies.
“…we renew for a further three years, until the end of 2013, our commitment to refrain from raising barriers or imposing new barriers to investment or trade in goods and services…”
I fully supported the G20 summit. You need to have conferences like that to get things done. There were some issues with the execution but overall I think it was a good thing. My problem is that we spent a billion dollars talking to other countries about the greatness of open economies, the wonders of mobile capital and how protectionism in this financial crises will not help anyone and then we do the exact opposite. Supporters of this decision to block Potash will say that it does not constitute a new policy, and that we are not setting up large barriers, that it is a one-time thing. It could be a one-time thing, but no one knows because the true reasons have not been released. Seems like the commitment we made in that document doesn’t hold much weight once the polls start turning against the idea.
Maybe in the next few days the reasoning for this action will be released. Of course, if in a week the bid from BHP is doubled and the deal is approved, we will know exactly what the issue was. This was actually just a elaborate bargaining tactic before the final sale was closed.