Canada Splits on Foreign Bid for Potash

Some observers say that in its broadest sense, the debate reflects a much-needed discussion on how Canada should oversee the natural resources—such as oil and uranium—on which its economy is so dependent. Others say the disagreement highlights a dangerous wave of protectionism and nationalism fed by the global economic downturn.”

Source: Wall Street Journal, November 1 2010

Observations:

• The main reason for the provinces to resist the acquisition is the loss of tax revenue, estimated to be $5bln over the next 10 years.

Implications:

• A secondary argument used by the provinces is that BHP Billiton would gain a too large share of the market by the acquisition. However, as BHP doesn’t currently own a significant fertilizer business, this argument doesn’t hold for regulators. Furthermore, the potential changes to the pricing system that BHP would like to introduce would promote free trade rather than keep the current cartel system (from which the provinces are benefiting) in place.
• Rumors of an increase of the bid by 10% in order to win over the required threshold of investors were smothered by other rumors that BHP would not increase its bid before the Canadian government would give its approval to the deal. In this way BHP manages to increase the pressure on the government via the shareholders of PotashCorp, that would get a good deal.
• Most likely Harper will try to find a compromise by giving a conditional approval, with conditions including job security and arrangements to secure income for the provinces. In this way he will be able to defend the acquisition to the political audience while not setting international markets up against Canada.

©2010 | Wilfred Visser | thebusinessofmining.com