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(Reuters) - The Canadian government said on Friday it intends to make its reviews of foreign takeovers more transparent, by stating when it has reservations about a deal and perhaps even going so far as to provide details about its concerns.
The move comes as 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.
Canada, which traditionally bills itself as being open to investment, shocked the international business community when it vetoed Anglo-Australian miner BHP Billiton's $39 billion hostile bid for fertilizer giant Potash Corp in 2010.
"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 government said in a statement.
The change would also allow the minister to publicly explain reasons for sending the initial rejection notice, as long as this does not cause harm to either the Canadian business or the investor.
The move is seen as a direct response to lingering questions raised by the quashing of the BHP bid for Potash Corp.
"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.
Some lawyers believe that the government's latest move will not result in any dramatic change though, as the minister will be limited by confidentiality concerns.
"I don't think this is going to result in a sea change necessarily," said Kevin Ackhurst a partner with Norton Rose in Toronto, who focuses on competition and antitrust issues. "The question really is how much are they really going to be able to say without going into commercially sensitive details."
Under the Investment Canada Act, the government can review and block any foreign investments worth more than C$330 million ($337 million) - a paltry sum in the global mergers game - if it thinks a deal is not in Canada's best interests.
It has exercised that right twice; once with the planned acquisition of a satellite company by a U.S. bidder and in the 2010 bid for Potash Corp.
The latest amendment also proposes to address concerns of some critics who argue that the Canadian government has little recourse, if foreign acquirers fail to live up to promises they make to the government in order to win consent for a deal.
The issue arose after Canada was forced to wade into a legal battle with U.S. Steel Corp in order win the right to fine the steelmaker for breaking job-protection promises made when it bought Canadian steelmaker Stelco. The two parties settled the matter last December.
The government now plans to urge foreign investors to comply with their undertakings by collecting a security deposit. The deposit will be used to pay penalties ordered by a court for contraventions of the Investment Canada Act.
While the security deposit will be voluntary, Borgers notes that any foreign investor, keen on an acquisition within Canada, will be hard pressed to refuse the government if they are keen to win an approval.
"The question of offering or not is a bit of a misnomer," said Borgers. "It's like saying make me an offer that I can't refuse."
Reporting by Julie Gordon, Janet Guttsman and Euan Rocha; Editing by Peter Galloway