August 19, 2010 / 2:47 PM / 7 years ago

Analysis: BHP Potash bid likely to pass regulatory muster

TORONTO (Reuters) - Marius Kloppers, chief executive of BHP Billiton, says his company brings four decades of know-how to the table in asking Canadian regulators to approve its proposed takeover of Potash Corp of Saskatchewan.

Lawyers say BHP, the world’s largest miner, may need its experience to ease concerns about another foreign takeover of a marquee Canadian resource company.

Political scrutiny is expected to be intense after other high-profile takeovers allowed by the minority Conservative government eventually led to Canadian job losses.

But in the end BHP is expected to convince regulators a deal for Potash Corp, the world’s No.1 fertilizer supplier, is good for Canada and the Prairie province of Saskatchewan.

Canada is among the friendliest of the developed economies to foreign investment, and BHP Billiton is no stranger to dealing with foreign regulators.

“If BHP knew that this was a non-starter, we would never have heard of it,” said Walid Hejazi, a professor at Rotman School of Management in Toronto.

He said the company likely held exploratory talks with the federal government before launching its bid for Potash Corp.

BHP on Wednesday took its $39 billion offer to buy Potash Corp directly to shareholders after the target company’s board rebuffed its friendly approach as too low.

“The government has no reason to block it, provided that BHP Billiton agrees to reasonable commitments under the Investment Canada Act,” said Richard Steinberg, who heads mergers and acquisitions at one of Canada’s biggest corporate law firms, Fasken Martineau.

To be sure, BHP will likely agree to keep a certain number of jobs, and it has already signaled its willingness to maintain a corporate presence in Saskatchewan, which holds huge reserves of potash.

“Experience has taught me that every regulatory filing is an unbelievably important one,” Kloppers told journalists during a conference call to discuss the bid for Potash Corp, based in the province’s largest city, Saskatoon.

“In reality ... we have been practicing for 40 years for this regulatory filing, and in Saskatchewan we have been practicing for the past 2 1/2 years for this filing.”

BHP Billiton says it plans to keep the headquarters of its global potash operations in Saskatchewan, where it already owns a project that could one day produce about 8 million tons of potash annually, or 12 percent of current global capacity.

PREVIOUS FOREIGN TAKEOVERS

But opposition parties have already signaled their intention to look closely at the Australian company’s plan.

“As we’ve seen with the takeover of Inco, Falconbridge, Stelco, and Nortel there can be a devastating cost when governments give foreign corporations carte blanche to take over without any accountability or transparency,” said Claude Gravelle of Canada’s left-leaning New Democrat Party.

Canada is currently suing US Steel, alleging it failed to live up to investment commitments when it shut down its Canadian operations last year. U.S. Steel acquired the operation when it bought Stelco in 2007.

Canada also raised concerns last year with layoffs at Canadian mines owned by mining giants Vale and Xstrata, which bought Inco and Falconbridge, respectively, in 2006. Canada has since said it has no issue with the layoffs.

“As with any foreign investment agreement, the BHP proposal has the potential to strengthen the economy and create jobs, but it must be subject to a fully public review,” said Gravelle.

Marc Garneau, the industry critic for the main opposition Liberals, said the party would not block the deal because it agreed with opening doors to foreign investors.

But he said the Liberals -- unhappy with the way some foreign takeovers were handled by the Conservative government of Prime Minister Stephen Harper -- would press for a deal that protects jobs and benefits the economy.

In the end, BHP is likely prepared to accept whatever regulatory conditions Canada chooses to impose under the Investment Canada Act.

The only regulatory risk posed to the deal is in how long it takes to get done, and time always favors the target in a hostile bid situation.

“From the defensive perspective, time is always your friend,” said John Mackie, a lawyer for Westlaw Business Currents. “If it takes too long, what does that mean.”

($1=$1.03 Canadian)

Reporting by Pav Jordan; additional reporting by Cam French in Toronto and Louise Egan in Ottawa

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