Archive for the 'Investment Canada' Category
November 27, 2012
The C.D. Howe Institute published a new report on the Canadian Investment Canada Act and state-owned enterprises (SOEs): Speed Dating or Serious Courtship? Canada and Foreign State-Owned Enterprises. Abstract:
“If Canada wants to benefit from Asia’s long-term growth potential, there is no getting around the need to do business, carefully, with state-owned enterprises (SOEs), according to a report released today by the C.D. Howe Institute. In ‘Speed Dating or Serious Courtship? Canada and Foreign State-Owned Enterprises,’ author Daniel Schwanen discusses how Canada can address concerns about the potential impacts of investment by foreign SOEs in Canadian companies.”
For a copy of the C.D. Howe Institute’s new report see: Speed Dating or Serious Courtship? Canada and Foreign State-Owned Enterprises.
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November 16, 2012
The following are some of the more interesting competition, advertising and regulatory law developments that caught my eye over the past several days, at least to the extent they have a bearing on Canada or companies doing business in Canada:
BCE and Astral plan to work towards reworking their deal to obtain regulatory clearance (see: here and here), following a rejection of the deal by the federal CRTC.
The Malaysian state-owned oil company Petronas was reported to be revising undertakings to obtain Investment Canada Act clearance for its acquisition of Progress Energy (see: here).
The CRTC launched new web pages for their planned mandatory wireless code consultations that include the “top 100 liked” comments for a new wireless code (see: here).
Earlier today, Canada’s Finance Minister gave some further indications that the Federal Government may soon reveal new Investment Canada Act rules for FDI in Canada and that the new rules may include “limits” (see: here). Any such rules would replace and/or supplement existing Investment Canada Act provisions and guidelines under the ICA (e.g., those specifically relating to national security or state-owned-enterprises).
More testimony unfolded in the ongoing Quebec corruption and competition law probe relating to allegations of municipal bribes and bid-rigging in the construction sector in Quebec (Monique Muise at the Gazette in Montreal has the best feed going on this, plus she has a sense of humour and, if I may say, classic Quebecois ability to take things in stride – see: here).
November 9, 2012
Guest contribution by Dr. Derek Ireland, Ottawa (djirel@sympatico.ca)
Introduction and Background
My 2008 PhD dissertation was on the interactions between India’s business groups and the country’s competition policies and laws over the past four decades. Since then, I have continued my research on these interactions and the special challenges posed by state-owned and privately owned business and enterprise groups for competition authorities in emerging market economies as well as the more advanced OECD competition law jurisdictions. My work on this question includes several articles, working papers and conference presentations.
There is little published material on competition law cases involving state-owned and privately owned enterprise and business groups located in emerging market economies. Enterprise and business groups from emerging markets have been entering OECD country markets in a major way only in the past 10-15 years; and many emerging economies with large business group sectors such as India, China and Indonesia started to enforce their competition laws only in the past few years. However, this situation could change dramatically in the future given the “going global” strategies of many emerging economy enterprise and business groups and the more than 80 developing and emerging market economies that now have competition laws and authorities (see e.g. Ireland 2008a and 2011a).
Therefore, OECD country competition authorities and other government agencies may soon be facing complex and less familiar competition and other issues and cases as privately owned or state-owned business groups and networks in emerging economies become more prominent and influential in many advanced economies through exports, greenfield investments, mergers and acquisitions, R&D partnerships and joint ventures, strategic alliances, and other mechanisms.
The CNOOC-Nexen Transaction
Canada is currently facing such a matter under its Investment Canada Act. This matter involves the proposed CAD 15.1 billion acquisition of Nexen by CNOOC: the China National Offshore Oil Corporation. Nexen is a comparatively smaller privately owned Canadian oil and gas producer and participant in the oil sands and the Canadian and global oil and gas markets. Nexen is located in the Canadian province of Alberta.
CNOOC is a large and quite diversified state-owned corporation/enterprise group that is involved in a large number of products, services and markets. CNOOC was established by the Government of China soon after the start of the reform period in 1982 in order to exploit offshore oil and gas resources. This state-owned corporate entity has many of the attributes of an enterprise group. While CNOOC largely focuses on the oil and gas sector, the corporation now has six business sectors, including exploration and development of oil and gas, technical services, logistics services, chemicals and fertilizer production, natural gas, power generation, and financial services and insurance. The Government of Canada has recently announced that a decision on this transaction will be delayed for a month and is now expected to be provided in the middle of December 2012.
The CNOOC acquisition of Nexen is a “friendly” takeover, which has already been approved by the Nexen shareholders apparently because of the large premium over the current market valuation of the company. It is reported that the Nexen purchase represents China’s largest overseas acquisition to date and the first time that a Chinese state-owned enterprise has attempted to fully acquire a Canadian oil and gas producer.
As a consequence, this acquisition represents and important benchmark and unfamiliar territory for all of the company and government players that are involved in the transaction in Canada and China. The federal government decision under the Investment Canada Act will provide an important precedent that will strongly influence future transactions and related commercial relationships between Canadian and Chinese companies and between our two economies.
Insights for Future Mergers
and Other Competition Law Cases
While subject to Competition Bureau and Investment Canada review, the focus of this transaction has been on the Investment Canada Act review. Canadian debates on applying the “net benefit test” and national security considerations under the Investment Canada Act to this transaction, and a previous unsuccessful attempt by CNOOC to purchase an American oil company Unocal, have raised a number of difficult issues that could be relevant to the review of future mergers and other competition law cases in the OECD jurisdictions that would involve state-owned enterprises and enterprise groups from emerging market economies.
The OECD published a new working paper earlier today (November 6th) on Canada entitled “Unleashing Business Innovation in Canada”.
Abstract:
“This paper discusses how to improve Canada’s business innovation in order to boost labor productivity and output growth. Many general framework conditions are highly favorable to business risk-taking and innovation, including macro stability, openness, strong human capital, low corporate tax rates, low barriers to firm entry and flexible labor markets. However, they can be improved further by reduced external and interprovincial barriers in network and professional service sectors, more efficient capital markets, fewer capital tax distortions and improved patent protection. A second focus should be on ensuring that incentives arising from government subsidies are targeted on actual market failures. The very high level of support to business R&D via the federal Scientific Research and Experimental Development (SR&ED) tax credit and provincial top-ups may affect the incentives of small firms to grow and should be redesigned. A plethora of small, fragmented granting programs, mainly geared to SMEs, should be streamlined for better government-business collaboration. The large public share in venture capital should be wound down, as it may crowd out more productive private finance. A final focus should be on boosting manager and worker skills that are intrinsic to all forms of innovation, by filling gaps in training, mentoring and education. This Working Paper relates to the 2012 OECD Economic Review of Canada (www.oecd.org/eco/surveys/Canada).”
The OECD’s new working paper on Canada includes several recommendations for changes to Canada’s Investment Canada Act regime:
“To take full advantage of FDI, Bergevin and Schwanen (2011) and CPRP (2008) have recommended that the Investment Canada Act’s (ICA) net benefit test for foreign investments should be either removed or the onus shifted to government to prove that a proposed investment is not in Canada’s interests, with the reasons publicly stated. As announced in the 2012 budget, the federal government is in the process of making targeted improvements to the Investment Canada Act to enhance transparency while preserving investor confidentiality. The Ministries of Industry and Canadian Heritage would do well also to create procedures to provide foreign investors with timely and binding opinions concerning ICA compliance of prospective transactions (CPRP, 2008). At the same time, ownership restrictions in sheltered sectors, notably telecommunications and broadcasting, need to be lifted in order to get much needed capital, contestability and management talent. This process has already begun: in 2010, foreign ownership restrictions were removed for Canadian satellites and changed to permit greater foreign investment in the air transport sector; and in 2012, the federal government lifted foreign investment restrictions for telecommunications companies that hold less than a 10% share of the total Canadian telecommunications market.”
“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.”
(Slate)
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“Sources say Ottawa asked Petronas at the eleventh-hour for a delay to rule on its bid to take over Progress until Dec. 7, so it can finalize its new policy. Industry Canada, which is reviewing the transaction, had already delayed its decision once and had promised to produce a ruling by Friday.”
(Financial Post)
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“The lack of transparency is starting to reach new heights. Who releases such an important decision at midnight on a Friday? Someone who has something to hide and no way to explain.”
(NDP leader Thomas Mulcair)
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In a week of surprises that included the CRTC denying BCE’s BCE’s acquisition of Astral, late on Friday night the Minister of Industry announced that he was not satisfied that Petronas’ proposed acquisition of Progress Energy Resources was likely to be of net benefit to Canada:
“I can confirm that I have sent a notice letter to Petronas indicating that I am not satisfied that the proposed investment is likely to be of net benefit to Canada. I came to this decision after a careful and thorough review of the proposed transaction. Under the Investment Canada Act, Petronas now has up to 30 days to make any additional representations and submit any further undertakings, which can be extended with my agreement and that of the investor. Subsequently, I will either confirm this initial decision or approve the acquisition.”
While the Minister reiterated similar earlier statements by the Prime Minister and other Government officials that Canada remained open to investment (saying that the Government remained “committed to maintaining an open climate for investment”), this decision casts those statements further in doubt and, while statistically absolutely true, raises again the question of the applicable rules investors and in particular SOEs must meet.
On Sunday, on CTV’s Question Period, Canada’s Finance Minister Jim Flaherty also said that Canada “welcomes foreign direct investment” but that Petronas type bids must ultimately be “correct”.
The Petronas/Progress deal had received some, but by no means as much, attention as the pending CNOOC/Nexen deal, which has recently been extended until November to allow for a national security review.
According to media reports, Petronas refused the Government’s request for more time to review its proposed bid to acquire Progress, had grown frustrated with negotiations attempting to satisfy the Investment Canada Act’s (ICA) net benefit to Canada test and according to media sources was getting little Government input on required commitments. On October 5th the initial ICA review period had been extended (see: here).
The Minister has an initial 45 days to review proposed investments under the Investment Canada Act, which can be unilaterally extended another 30 days (with further extensions with consent of an investor). Where an investment is opposed, investors may make further submissions in an attempt to clear a transaction with further undertakings.
In a brief news release issued by Progress on Saturday, it said:
“The Board of Directors, management and employees of Progress are disappointed in the announcement. ‘Progress will be working over the next 30 days to determine the nature of the issues and the potential remedies’ said Michael Culbert, President and Chief Executive Officer of Progress. ‘The long-term health of the natural gas industry in Canada and the development of a new LNG export industry are dependent on international investments such as PETRONAS’”.
This decision is rather surprising, although it is always difficult to predict whether transactions will receive ICA clearance based on the opaque political nature of the ICA net benefit criteria and fact-specific nature of every transaction and related undertakings.
State-owned enterprises are subject to an additional layer of review in Canada under Investment Canada’s SOE Guidelines that set out additional factors (relating to the corporate governance and commercial orientation of the SOE) in addition to the general net benefit to Canada factors in section 20 of the ICA. SOEs may also be required, as is being illustrated in this case, to provide more stringent undertakings than private investors – for example, undertakings for the complete duration of a proposed investment.
The Brookings Institution has published a very interesting new article on the proposed acquisition by CNOOC (China National Offshore Oil Corporation) of Nexen in Canada, which discusses, among other things, some of the possible rationales for Chinese interest in unconventional oil assets in Alberta including increasing reserves and production (North America now being the “epicenter” of unconventional upstream oil and gas mergers), a desire to acquire technological and operational expertise to develop China’s own domestic shale gas reserves and to diversify political risk. I thought this was a rather good commentary on the proposed CNOOC/Nexen deal (the Investment Canada Act review for which was recently extended by another 30 days for a national security review). This recent Brookings article also discusses CNOOC’s failed bid for Unocal. For a copy of this Brookings Institution note authored by Erica Downs see: China, Iran and the Nexen Deal.
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The National Competition Law Section of the Canadian Bar Association has published a new issue of its Competition Law Review (which is now also available in a searchable format online).
This new issue includes articles on The Competition Act of 1986, Competitor Agreements: Interpreting Criminal Conspiracy in a Blended Criminal-Civil Regime, Section 36 of the Competition Act, Abuse of Dominance in Canada: Reflections on 25 Years of Section 79 Enforcement, The Treatment of Vertical Price Restraints under the Competition Act, The Evolution of Vertical Distribution Practices under the Competition Act, 25 Years of Merger Review in Canada, The Evolution of Canada’s Pre-Merger Notification Regime (1986-2012), Foreign Investment Screening under Canada’s Investment Canada Act, Misleading Advertising and Deceptive Marketing Practices under the Federal Competition Act, A Quarter Century of the Competition Tribunal and Economics and Canadian Competition Policy.
From the CBA:
“Volume 25, Issue 2 is a special edition devoted to a retrospective on 25+ years of the Competition Act and the Investment Canada Act. Leading members of the bar, including four former Commissioners, have authored high quality papers taking an in-depth look at the substantive and procedural development of those statutes. We trust that you will find them informative, thought-provoking and enjoyable.”
For a copy see: Canadian Competition Law Review (Fall 2012)
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The Conference Board of Canada has published a new briefing entitled “Who Dimmed the Lights? Canada’s Declining Global Competitiveness Ranking” that examines Canada’s current competitiveness in light of the recent World Economic Forum’s Global Competitiveness Report 2012-2013, which ranked Canada 14th globally. Canada dropped two positions this year in the WEF’s report, with some of the critical commentary in the report including:
“Canada falls two positions to 14th place in this year’s rankings. Although Canada continues to benefit from highly efficient markets (with its goods, labor, and financial markets ranked 13th, 4th, and 11th, respectively), well-functioning and transparent institutions (11th), and excellent infrastructure (13th), it is being dragged down by a less favorable assessment of the quality of its research institutions and the government’s role in promoting innovation through procurement practices. In a similar fashion, although Canada has been successful in nurturing its human resources compared with other advanced economies (it is ranked 7th for health and primary education and 15th for higher education and training), the data suggest a slight downward trend of its performance in higher education (ranking 8th place on higher education and training two years ago), driven by lower university enrollment rates and a decline in the extent to which staff is being trained at the workplace.”
Top 10 “most problematic factors for doing business in Canada” in the WEF’s report were: an inefficient government bureaucracy, insufficient capital to innovate, inadequate access to funding, inadequately educated workforce, tax rates, tax regulations, restrictive labor practices, inadequate infrastructure, a poor work ethic and policy instability.
Templates/precedents and checklists to run promotional contests in Canada
Templates/precedents and checklists to comply with Canadian anti-spam law (CASL)
