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Jack M. Mintz is the Palmer Chair, School of Public Policy, University of Calgary.
The “strategic asset” argument was deployed to effect in several recent proposed takeovers
Canada’s on and off again love for foreign direct investment has recently come to play with Warren Buffett’s Berkshire Hathaway Energy’s proposed takeover of AltaLink, an electrical company that owns significant transmission assets in Alberta. The acquisition is being opposed in some quarters using the argument that transmission is a “strategic asset” that should remain in Canadian hands.
In Alberta’s regulated and privatized electrical market, it is not entirely clear why a new person on the block, especially one with deep pockets worth $55-billion, would undermine the fundamentals of the heavily regulated market. A strong owner of AltaLink will add competition to a market characterized by several successful electrical generation and distribution players, including TransAlta, Atco, EPCOR, Capital and ENMAX. In most cases, these privatized hefty companies typically invest not only in Alberta but also globally.
Like these other companies, the new AltaLink, which is focused on Alberta, could transform itself into a significant player investing in energy infrastructure assets in Canada. With both capital and managerial expertise offered by Berkshire Hathaway, AltaLink will be able to support the management of transmission infrastructure owned by Warren Buffett’s worldwide empire.
The “strategic asset” argument was deployed to effect in several recent proposed takeovers. Probably the worst involved Quebec blocking the acquisition of the retailer, Rona.
The failed BHP Billiton takeover of Saskatchewan Potash Corporation, now mired with falling profitability due to weak potash prices, also suffered the “strategic asset” concept.
Of course, what is good for the goose is good for the gander. When Saskatchewan Potash Corporation later tried to acquire Israel Chemicals Ltd., the sixth largest potash producer in the world, the Israeli government blocked the acquisition using the same “strategic asset” argument.
Canadian governments protect management from competition in other ways as well. Foreign ownership rules have maintained banking, transportation and telecommunications oligopolies. Crown corporations dominate the power industry in many provinces. Subsidies to domestic firms prevent foreign competition as well. Many parts of our economy are effectively walled in, ultimately undermining productivity by putting less pressure on companies to innovate.
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