The Real Story Behind Ottawa’s Potash Rejection – by Eric Reguly (Globe and Mail-November 11, 2010)

Eric Reguly is the European Business Correspondent for the Globe and Mail, Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous impact and influence on Canada’s political and business elite as well as the rest of the country’s print, radio and television media.

Eric Reguly

BHP Billiton’s $39 billion (U.S.) bid for Potash Corp. is unofficially dead. Ottawa’s rejection of the offer has triggered a flurry of half truths, outright falsehoods and general hysteria from the usual political, business and media quarters. Herewith are some of the myths, and my responses to them.

Ottawa’s (tentative) rejection of the deal sucks because BHP was making a big, fat “investment” in Canada:

No investment is created equally. The best investments are the ones that bring fresh capital, and fresh thinking, to the deal. In this case, BHP’s proposal to buy Potash Corp. was not an investment per se; it was merely substituting one bucket of capital (BHP’s) for another (Potash Corp.’s). The Canadian company doesn’t need BHP’s capital any more than Potash Corp. boss Bill Doyle needs to stuff another $100-million into his holiday fund. Potash Corp. has never had any trouble raising capital; no company with a killer product and a decent business plan does. It became the top fertilizer player on the planet all by itself and ownership by BHP would not necessarily accelerate its growth plans; on the contrary, it might slow them down because BHP has zero fertilizer experience or working fertilizer assets, meaning it could not offer management expertise or synergies.

BHP does have a vast potash property in Saskatchewan called Jansen, which it may or may not develop. Building the mine would require $12-billion of spending. Now that would be a genuine – and welcome – investment.

Canada is “closed for business” because Ottawa sent BHP packing:

Almost every country in the world has some sort of foreign investment review system, ranging from a proper screening agency to a prime minister or dictator who can stop a deal with the same intellectual rigour as ordering a bottle of champagne. The United States prevented a Chinese takeover of California oil giant Chevron and a political backlash forced Dubai World to sell its P&O ports to an American buyer. In Australia, BHP’s home country, the government blocked the sale to foreigners of two big resources companies, Woodside Petroleum and Oz Minerals. It is all but certain to reject the Singapore Stock Exchange’s $8.2-billion offer for Australian Stock Exchange (speaking of which, it’s just a matter of time before someone goes after TMX Group, owner of the Toronto Stock Exchange, so the feds better figure out soon whether the bourse is a strategic national asset that needs a moat dug around it). Canada has rejected precisely two foreign takeover attempts of the 1,600 or so made in the past quarter century, with Potash Corp. being the second. Australia, one of the world’s strongest economies, hasn’t suffered because of its occasional foreign investment flap. Neither will Canada.

The cynical feds were making policy “on the fly” because they were in a panic about losing Prairie votes:
Well, maybe. You could argue that the BHP offer would have been rubber-stamped if Stephen Harper & Co. had had a majority in the Commons and weren’t facing an election. You could argue equally convincingly that BHP’s ownership of Potash Corp. would be unambiguously bad for Canada and that the government was compelled to turn it down. To foreign companies, dealing with Investment Canada must seem like a simple box-checking exercise (or must have before BHP tripped up).

For the rest of this column, please go to the Globe and Mail website: