TORONTO/OTTAWA (Reuters) - The government said on Wednesday it may seek to review the $4.5 billion (C$4.3 billion) auction sale of patents belonging to bankrupt Nortel Networks under a law governing foreign investment.
But the limited value ascribed to the patents in Nortel’s financial statements could mean the threshold at which the government can get involved is not reached.
A consortium of technology companies including Apple, Microsoft and Research In Motion won an auction last week to buy more than 6,000 approved and pending patents from the former telecom giant.
Under the Investment Canada Act, the federal government must review any foreign investment or purchase of Canadian assets worth C$312 million ($322 million) or more. It can reject transactions that do not provide a “net benefit” to Canada.
Industry Minister Christian Paradis is asking his officials to determine whether the law applies to the Nortel assets.
“As a standard practice, the Minister expects officials to look into significant transactions to determine how the Investment Canada Act applies,” a spokeswoman for Paradis said in an e-mail.
The government last year blocked Anglo-Australian miner BHP Billiton’s $39 billion takeover offer for Canada’s Potash Corp, just the second time a foreign takeover has been stopped since the investment review act came into effect in 1985.
But in the case of Nortel, which filed for bankruptcy protection in January 2009, the patent sale may escape scrutiny because the book value of the assets could be much less than the auction price, according to one legal expert.
“In this particular case ... the book value could be more nominal than substantive,” said Douglas New at law firm Fasken Martineau.
“Regardless of what someone is willing to pay for them, even if they’re paying in the billions of dollars, one still has to look to see what the book value of those assets is.”
He said that if that value misses the threshold then “barring a national security issue, it’s not going to be subject to review by the minister.”
Nortel earned $31 million from patent licensing in 2008 and 2007, and $21 million in 2006, according to its full year fiscal statements for 2008.
The government decided not to launch a review of Ericsson’s $1.13 billion purchase of Nortel’s wireless assets in September 2009, saying the book value of those assets was C$182.5 million, well below the act’s threshold.
BlackBerry maker RIM had opposed that deal, which gave Ericsson licenses to Nortel’s wireless patents but not outright ownership.
Ericsson, along with Sony and EMC, was also part of the consortium that outbid Google and Intel for Nortel’s patents last week.
The sale still needs to be approved by U.S. and Canadian courts. The deadline to object to the patent sale with the Delaware bankruptcy court overseeing Nortel’s insolvency is close of business on Wednesday.
Editing by Jeffrey Hodgson