Hands off, eh
Is everything sacred in Canada? At first it was a hole in the ground. Then it was the stock exchange and a DIY chain. This week, regulators blocked two more big deals, including a $5.2 billion bid for Progress Energy by Petronas of Malaysia. Taken as a whole, these actions signal the market for corporate control in Canada – especially when it comes to foreign buyers – is effectively closed.
The definition of industries worthy of protection has become incredibly expansive. Fertilizer producer Potash was judged too important for the Saskatchewan economy to let slip into the hands of Australian miner BHP. The Toronto Stock Exchange was deemed a national champion that needed to retain its independence.
This protectionist instinct has crept with French-like stealth into sectors hardly in the realm of national economic security, like the home improvement business. A proposed takeover by the American chain Lowe’s of Rona, its struggling Canadian rival, was scuttled by opposition from Quebec’s finance minister, local politicians and large stakeholder Caisse de Dépôt et Placement du Québec.
So it’s no surprise the number of Canadian mergers and acquisitions in the third quarter fell 21 percent when compared to the same quarter last year, according to PricewaterhouseCoopers. With so many proposals getting torpedoed an inevitable chilling effect appears to be gripping boardrooms.
No company wants to spend months and many millions on a transaction that’s likely to be shut down. And Canada’s multiple regulators on the provincial and federal level add to the uncertainty. To wit, on Thursday the Radio-television and Telecommunications Commission blocked the acquisition of Astral Media by BCE, arguing the merger would not be in the public’s interest.
This is not just bad news for Bay Street’s investment bankers. It may hurt all Canadian shareholders, as they are denied takeover premiums for their holdings, or must forgo the synergies that might result from consolidation.
The Petronas deal, in particular, may be an ominous sign for CNOOC’s $15.1 billion offer to buy oil sands producer Nexen. Though it is just the nation’s 24th largest energy producer and most of its operations lie overseas the bar for meeting the Investment Canada Act’s “net benefit” test just went up. Canada, it appears, is no longer quite so open for business.