Canadian COMPETITION LAW

September 22, 2010

Canada’s foreign investment regime under the Investment Canada Act was recently amended to, among other things, make “Canada more competitive in an increasingly global marketplace” and “enhance Canada’s competitiveness as a destination for capital and talent” (see: Competition Policy Review Panel, Final Report, Compete to Win (2008)).  From the growing campaign against BHP in recent days you couldn’t tell that Canada’s door was intended to be opened wider.

First the Potash board declared (somewhat according to the standard script for takeover targets) that the BHP bid was inadequate.  Then the initially apparently welcoming Saskatchewan government began to question whether the BHP bid would really be of net benefit to Canada (the overarching test under Canada’s foreign investment regime), apparently based on BHP’s indication that it would withdraw from the potash export cartel Canpotex.  Next, in a somewhat surprising development, the Competition Bureau issued a supplementary information request earlier this week moving the merger control portion of the BHP/Potash regulatory review into a second stage review (despite many outward observers speculating that the overlap appeared to be of little concern, given that that BHP’s existing potash assets are non-producing).

In addition, potential Chinese bidders are reported to be looking at options to block the BHP bid, including China’s Sinochem Corp. reported to have appointed Deutsche Bank and Citigroup to advise it of options to block the BHP bid – see Reuters, Globe and Mail and The Australian) and Potash is reported as well to have retained consultants, including one former Canadian Commissioner of Competition, to lobby against the transaction, or perhaps at minimum delay the transaction to allow Potash to search for potential alternative bidders.  Media reports indicate that some possible other bidders, including Vale and Teck, have indicated no interested in launching competing bids.

Then earlier today, the New York Times Deal Book, Fox Business, Bloomberg and others reported that Potash Corp. announced that it filed a lawsuit against BHP seeking to block BHP’s hostile bid (for a copy of the complaint see: Potash Complaint).  The lawsuit filed in federal court in Chicago alleges that BHP misrepresented to inform investors about material facts in contravention of U.S. federal securities laws.  In particular, the suit alleges that BHP attempted to drive down Potash Corp.’s perceived value by strategically timing announcements about becoming a direct competitor in the potash business, in order to make a bid without triggering a vote by BHP shareholders.

In response to the apparently growing opposition to its bid, it has been reported that BHP has hired advisers to three Canadian prime ministers to lobby for its bid for Potash Corp., namely Michael Coates (an adviser to the current Prime Minister Stephen Harper), William Pristanski (an aide in the 1980s to the former Conservative leader Brian Mulroney) and Bruce Hartley (a former assistant to former Liberal leader Jean Chretien) (see: The Sydney Morning Herald).

All in all it’s been a rather tough week for BHP.  While Canada’s foreign investment regime has technically been recently amended to further open the door to foreign investment in Canada, it must surely not seem that way to BHP in the face of apparently mounting opposition to its bid for Potash Corp.

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