Is Canada closed to foreign investment? – by Matthew McClearn (Canadian Business Magazine – November 19, 2012)

Canada was, quite literally, built with foreign investment. From the mid–19th century, British investors supplied much of the capital necessary to finance the railways, buildings, canals and other infrastructure its colony required. Later, American industrialists built lumber and newsprint mills, mines and manufacturing plants. Despite constant internal bickering about the consequences of allowing it, Canada came to be regarded internationally as a nation quite open to receiving foreign capital.

In the past five years, however, several high-profile takeovers proposed by foreigners were spurned. Most recently, Ottawa surprised many by blocking a bid by Malaysia’s Petroliam Nasional Berhad (Petronas) to acquire Progress Energy Resources for $5.9 billion. More important, this prompted speculation that China National Offshore Oil Corp.’s outstanding $15.1-billion offer for Nexen might receive similar treatment.

Most bizarrely, provincial officials in Quebec intervened this summer to oppose an attempt by Lowe’s, the American home-improvement retailer, to purchase Rona, that province’s celebrated vendor of hammers, reciprocating saws and drywall. And while Bell Canada is a decidedly domestic company, the recent decision by the CRTC to reject its bid for Astral Media only confirmed in some minds the notion that Ottawa is in a mood to meddle in large deals.

On their face, these events seemingly contradict what Prime Minister Stephen Harper and his lieutenants have been saying for years. In February, Harper personally visited China to deliver the message that Canada was not only open to foreign investment, but eager to diversify away from its traditional reliance on American capital. “Our governments, our business leaders and our peoples have worked diligently to identify and to seize opportunities for expanding mutually beneficial trade and investment,” Harper told one audience.

This represented the most prominent of what have become routine Canadian delegations dispatched to Asia and elsewhere. These efforts took on greater urgency last year after TransCanada Corp.’s efforts to build a tarsands oil pipeline in the U.S. stumbled in the face of intense political opposition there. Canada’s traditional partner, some believed, was beginning to take our fruitful bilateral relationship for granted.

The mixed signals on foreign investment are, as one might expect, sowing confusion among foreign companies and investors. Sandy Walker, a lawyer with Fraser Milner Casgrain bearing extensive experience with foreign acquisitions, says she recently met a Chinese regulatory lawyer who resented what she regarded as Canada’s aversion to Chinese investment.

Walker also regularly encounters American private investors who follow foreign takeover reviews by the Canadian government closely—a big change from five years ago, when they paid no attention whatsoever. “They are concerned about what’s going on,” she says. “Foreigners, they don’t know what to make of this.”

Reuters columnist Robert Cyran recently contended that Canada’s “definition of industries worthy of protection has become incredibly expansive,” and that the country was no longer quite so open for business as once it had been. Some equity analysts lowered ratings on Canadian companies they previously believed might be takeover targets (Talisman Energy, for example), invoking the logic that the Petronas-Progress blockage would drive foreign buyers to shop elsewhere. The law firm Osler warned clients that “for the moment, it would be prudent to assume that the [foreign takeover] approval process is becoming more difficult.”

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