Analysis: BHP's Potash bid puts pro-business Canada to the test

Sat Oct 23, 2010 12:52pm EDT
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By David Ljunggren

OTTAWA (Reuters) - Canada's Conservative government will put its pro-business reputation on the line when it decides whether to let a foreign firm buy up resource giant Potash Corp, and Ottawa will win enemies whichever way it turns.

If it says yes it will alienate supporters in the western province of Saskatchewan, whose right-leaning government both backs the federal Conservatives and opposes the bid for provincial-based Potash Corp from Anglo-Australian miner BHP Billiton .

But if it says no, arguing that the takeover won't be of net benefit to Canada in terms of jobs, investment and revenues, it will annoy a business community that insists Canada must be open to foreign business to survive.

Industry Minister Tony Clement has until November 3 to decide whether to approve BHP's a hostile $39 billion offer or whether to use the Investment Canada Act to veto the proposal, the largest global takeover of 2010.

"It's difficult to see how the federal government can suddenly invoke Investment Canada to reject this," Professor Laurence Booth at the University of Toronto's Rotman School of Management said, referring to legislation that provides the framework for Canada to accept or reject a foreign bid.

"It comes down really to a political question ... it's a tricky one," he told Reuters.

And while there is discontent at the "hollowing out" of Canada, vetoing a deal could go against the grain for a Conservative government that has cut corporate taxes, tried to reduce red tape for business and stressed the need to avoid protectionism since it came to power in 2006.

"We should ... have one eye very much on our international reputation, on the rules we want other countries to play by when we are the buyer," former federal industry minister John Manley, now chairman of the Canadian Council of Chief Executives, told Business News Network.   Continued...