March 13, 2012 / 7:33 PM / 6 years ago

Analysis: Canada may allow a foreign takeover of Viterra

WINNIPEG, Manitoba/OTTAWA (Reuters) - Canada would probably allow a foreign takeover bid for the nation’s biggest grain handler, Viterra VT.TO, letting the Conservative government to win back some free-market credibility after it unexpectedly blocked a 2010 foreign deal for fertilizer giant Potash Corp.

Like any other sizeable foreign offer, a bid for Viterra would face an automatic review from federal industry minister Christian Paradis, as well as from anti-trust authorities.

But it would be a smaller bid than the $39 billion attempt to buy up Potash Corp and - importantly - the head of Viterra’s home province of Saskatchewan has signaled a softer stance.

“(Saskatchewan Premier) Brad Wall has... already made a declaration that he doesn’t see it, as Potash, as a strategic resource, so I think that sends a different signal compared to Potash,” said a Conservative source.

“If it’s not a vital resource, why not open it up, and I think that’s the direction the government’s going to go in.”

There has been no formal offer yet for Viterra, which had its roots in a farmer-owned cooperative called the Saskatchewan Wheat Pool.

But Swiss-based Glencore GLEN.L is seen as a possible bidder in a $6-7 billion takeover that could give it the lion’s share of supplies in Canada, the world’s biggest exporter of spring wheat, canola, durum and oats.

Viterra became an attractive prize after Ottawa ended the Canadian Wheat Board’s 69-year-old monopoly on wheat and barley for milling or export from Western Canada, giving other players’ more incentive to enter the long-closed market.

But approaches for Canadian resource-based companies always touch a political nerve. A foreign bid for any large company faces a government review on the basis of whether it is of “net benefit” to the country.

The Competition Bureau would also review any takeover of Viterra. But anti-trust concerns are likely only if an existing player absorbed the company.

A source says Glencore is assembling a bid, while analysts say Viterra would also be a logical fit for U.S. players Archer Daniels Midland ADM.N and Bunge BG.N.

Viterra is big in Canada, but not a world leader, and it gives no special royalty payments to Saskatchewan. Potash Corp, on the other hand, pays the Prairie province hundreds of millions of dollars a year, a factor that played into Wall’s opposition to the offer from Anglo-Australian BHP Billiton.

”(Wall) would be loathe to step in now, especially on the heels of the BHP thing,“ said David McGrane, professor of political studies at University of Saskatchewan. ”He’s very concerned that people from the outside, investors, don’t perceive Saskatchewan as an inhospitable place to invest.

“He probably will not say no.”

POLITICAL LANDSCAPE

Canada’s vastly changed political landscape also argues against opposition to a bid for Viterra.

When politicians stood against Potash Corp, elections were only months away in both Canada and Saskatchewan. New elections are not due for several years and Wall and Prime Minister Stephen Harper have majority governments with weak opposition.

“Lots has changed, in a lot of ways,” said Paul Thomas, retired professor of political studies at University of Manitoba. “Now that you’re in a majority, you’ve got more latitude to make decisions.”

Investors are already betting that a deal will go ahead. After comments Monday by Wall and Paradis - who said Canada welcomes foreign investment - Viterra’s shares extended the day’s gains to finish more than 6 percent higher.

The stock rose to a fresh 3-1/2-year high on Tuesday.

The Conservatives may be tempted to use Viterra to polish their tarnished free-market credentials, after they blocked both the Potash bid and a $1.325 billion offer for a satellite unit of Macdonald Dettwiler and Associates MDA.TO. “The country is and the government is extremely open to foreign investment. We’ve only turned down two investments in the history of the investment review process,” Prime Minister Stephen Harper told Reuters last month.

LOSS OF PRESTIGE

There could still be obstacles to a takeover, given Saskatchewan concerns about losing the prestige of a corporate head office and being mainly left with a network of country grain elevators.

Wall said he would want any Viterra successor to have a strong corporate presence in the province, although Viterra CEO Mayo Schmidt moved his own office to Calgary years ago.

A foreign buyer might dampen nationalist sentiment by teaming up with a Canadian player. But Glencore would open up anti-trust concerns if it paired with Prairie-based Richardson International Limited, the second-biggest Canadian crop handler.

Twinning with Calgary-based Agrium AGU.TO might be another option. Agrium, the top North American retailer of farm products, might like Viterra’s Canadian stores, but might leave crop handling to a foreign partner like Glencore.

While the prospect of losing Viterra to a foreign interest has riled some, Ottawa already showed it’s willing to weather criticism when it killed the Wheat Board monopoly.

“The Wheat Board’s gone for a reason,” the Conservative source said. “Now that the Wheat Board’s gone, this makes a lot of sense.”

Editing by Janet Guttsman

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