Canada offers more transparency on takeover rules

Fri Apr 27, 2012 5:41pm EDT
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(Reuters) - The Canadian government promised on Friday to make its reviews of foreign takeovers more transparent, allowing it to explain when it has concerns about a proposed investment and perhaps even saying why.

A government statement said Canada will change the way it reviews foreign investments, a nod to those who have complained about opaque rules that allow the government to block takeovers that it does not think will provide a "net benefit" to Canada.

"The amendments would allow the minister (of industry) to disclose publicly the fact that he has sent a preliminary notice to an investor that he is not satisfied that the investment is likely to be of net benefit to Canada," the statement said.

"They would also allow the minister to publicly explain his reasons for sending the notice as long as it would not cause harm to the Canadian business or the investor."

Canada, which traditionally bills itself as open to business, shocked the international business community in 2010 when it vetoed a takeover bid for fertilizer giant Potash Corp from Anglo-Australian miner BHP Billiton.

"This is really just a reaction to BHP," said Oliver Borgers a specialist in competition law at McCarthy Tétrault LLP in Toronto. "This change creates an opportunity for the minister of industry to explain the initial rejection."

As Canadian law stands, once the minister issues the initial rejection, the bidder has 30 days to scramble to change the minister's mind. If at the end of that period, the minister still feels the deal ought to be rejected, then the minister has to provide reasons for the rejection.

"In the BHP case the initial rejection was given and there was no basis to give reasons or say anything about why," said Borgers. "BHP in that case, perhaps because they were reading the writing on the wall, withdrew their application. With the result that the minister never had to do the final rejection and was never in a position where he had to issue reasons, leaving us all to this day wondering what the reasons for the rejection were."

That rejection prompted concerns about what the Conservative government would do if, for example, a foreign company bid for BlackBerry maker Research In Motion, a major Canadian technology company that has fallen on hard times as consumers shy away from its smartphones.   Continued...