Hostile foreign takeovers of large natural resource companies often provoke local resistance. Such was the case in November 2010, when the Canadian federal government blocked a US$36.8 billion takeover bid of Potash Corporation of Saskatchewan, the world’s biggest miner of the fertilizer potash, by BHP Billiton, an Anglo-Australian mining giant.
On the surface, the cause seemed to be a garden variety mix of nationalism and provincial protectionism. Daniel Wall, premier of Saskatchewan, sounded positively Chinese when he spoke of his desire to keep control of “a Saskatchewan champion, the largest fertilizer company in the world.”
China, nervous about BHP seizing control of a key fertilizer supplier, joined with the protesters. Chemical giant Sinochem was particularly concerned; it allegedly reached out to Canadian pension funds to organize a counter-offer.
Crashing the cartel
Sinochem’s concerns turned out to be unwarranted, but there was more than simple protectionism at work. BHP’s takeover bid drew the ire of the government of Saskatchewan, which depends heavily on taxes and royalties from potash – of which it holds about one-third of the world’s supply – for its revenue. Most of this comes from the Canadian Potash Exporters (Canpotex), a virtual cartel which manages the provinces’ exports.
BHP initially indicated that if it took over Potash, it would exit the cartel and sell on the open market – a plan which didn’t thrill the Saskatchewan government. BHP later attempted to execute an about-face on its position during negotiations, but provincial officials were not convinced.
Talks broke down in October, and the Saskatchewan government urged the federal government to reject the bid. The province also leveraged its 13 members of parliament to pressure the ruling federal coalition just as an important election was in the offing.
After the rejection, the Canadian press speculated as to whether the blocked takeover would deter other foreign investors. Yet industry insiders remain sanguine. John Hughes, a Toronto-based analyst at Desjardins Securities, pointed to the lack of opposition to the mining takeovers of Inco, Alcan, Miranda and Falconbridge.
“These were Canada’s national champions, and now they’re owned principally by Vale and Xstrata,” he said. “If [the government] was going to be concerned about foreign ownership, that would have come to light four or five years ago when these companies were sold.”
A member of the trade mission with the Canadian consulate of Shanghai, who asked not to be named, said that Chinese mining companies eyeing Canadian investments have voiced almost no concern to him about the incident, or whether the same could happen to them.
Ultimately, the exceptional circumstances of the Potash case do not support the suggestion that Canadian sentiment is turning against foreign investment. Potash was an interesting case, but an anomaly nonetheless.