Archive for the 'Investment Canada' Category
The Canadian Council of Chief Executives recently published a paper endorsing a new national security test for proposed foreign takeovers of Canadian companies entitled “Chinese Foreign Direct Investment in Canada: Threat or Opportunity”.
According to the author, Dr. Moran, a professor of international business and finance at Georgetown University, the majority of proposed foreign acquisitions “pose no plausible threat whatsoever” to national security.
From the CCCE:
“In today’s report, Dr. Moran considers two issues of central interest to Canada as Chinese foreign direct investment (FDI) grows to be a major force in the global economy: how does Chinese FDI affect the structure of natural resource industries around the world?; and when does the foreign acquisition of an existing firm constitute a national security threat to that firm’s home country?
On the first question, Dr. Moran rejects the suggestion that Chinese investments in the natural resource sector have the effect of “locking up” the world’s resource base. On the contrary, a review of several dozen recent Chinese acquisitions and procurement arrangements shows that most of them actually help to expand and diversify resource production and increase competition within the affected industry.
As to whether a given foreign takeover poses a risk to national security, Dr. Moran recommends the adoption of a new threat-assessment framework based on three distinct categories of undesirable foreign acquisitions: takeovers that would render the home country dependent on a foreign-controlled supplier that might deny or place limits on the provision of goods or services crucial to the functioning of the home economy; takeovers that would allow the transfer into foreign hands of technology or expertise that might be deployed in a manner harmful to the home country’s interests; takeovers that would give the new owner’s government, or some other hostile force, a platform for espionage, surveillance or sabotage, through the provision of goods or services crucial to the functioning of the home economy.
Acquisitions that fall into any of those three categories can legitimately be rejected on national security grounds, Dr. Moran says. However, that accounts for only a small percentage of proposed foreign takeovers. The rest, he says, may or may not deserve to be blocked on other grounds, but cannot fairly be considered threats to national security.
The adoption of this three-part threat assessment framework by Canada – and other countries – would “help to dampen politicization of individual cases, enabling swift and confident approval of those acquisitions from which genuine national security threats are absent,” Dr. Moran says. The entire international economic system would benefit, he argues, if OECD countries – and non-OECD countries such as China and India – were to accept this common threat assessment methodology.”
In March, 2009, amendments to the Canadian Investment Canada Act (“ICA”) introduced a new national security review mechanism, under which the Minister and Federal Cabinet have the power to review proposed or completed investments that may be “injurious to national security” in Canada. This relatively new national security review regime, which is distinct and administered separately from the general “net benefit” to Canada foreign investment test under the ICA, arose as a result of recommendations made by the Competition Policy Review Panel in its report entitled Compete to Win (which preceded significant amendments to Canada’s competition and foreign investment laws in 2009 and 2010).
The Ottawa Citizen, Globe and Mail and others have reported that the federal government, based on a recommendation of Heritage Minister James Moore, made a rather uncommon Cabinet order on March 27th under section 15 of the Investment Canada Act (“ICA”) triggering a cultural review of Target’s planned expansion into Canada.
The Cabinet order issued on March 27th states:
“His Excellency the Governor General in Council, considering it in the public interest, on the recommendation of the Minister of Canadian Heritage, pursuant to section 15 of the Investment Canada Act, hereby orders that the investment by Target Canada Co. to establish a new Canadian business carried on by Target be reviewed.”
Generally speaking, the ICA applies where a “non-Canadian” acquires “control” of a “Canadian business”, all as defined in the ICA (or establishes a new Canadian business, in the case of the Target expansion into Canada).
Where transactions to acquire control of a Canadian business exceed the relevant monetary thresholds under the ICA (currently Cdn. $330 million based on the book value of the target for direct investments by WTO investors), they are reviewable by Investment Canada and potentially also by Canadian Heritage if a cultural business is involved (or, if below the relevant monetary thresholds set out in the ICA, subject to a simple notification only, which are generally filed post-closing). Interestingly, there is no de minimis test for what constitutes a cultural business for the purposes of the ICA.
For investments by non-Canadians to establish a new Canadian business, as in the case of Target, a notification only is required, which may be filed any time up to completion or within 30 days post-completion. Such notifications require, among other things, the investor to provide basic information regarding the investor, the investment and type of Canadian business being established (including a description of whether the proposed investment relates to Canadian cultural business activities, such as the publication or sale of books, the production, distribution or sale of film of video, or the publication, distribution or sale of music).
On March 29, 2012, the Government released its 2012 Budget (Jobs, Growth and Long-term Prosperity: Economic Action Plan 2012). In its new Budget, the Government signals that it wants to continue to encourage foreign investment in Canada:
“Foreign investment provides significant benefits to Canada through knowledge, capital, access to new markets and the creation of high-value jobs across the country. The Government is committed to an open investment framework that encourages foreign investment in Canada as well as Canadian business investment abroad, while safeguarding Canada’s interests. The Investment Canada Act requires the review of significant foreign investments in Canada in order to ensure that the investments bring a net benefit to our country.”
In the Budget, the Government announced that it would be making targeted improvements to the administration of the Investment Canada Act “in the interests of greater transparency while preserving investor confidentiality” (although what specific steps the Government intends to make to the Investment Canada Act process is not yet clear).
On increasing speculation about potential bidders for Viterra, the company issued a short press release earlier today. In its release, Viterra said:
“Viterra Inc. … at the request of Market Surveillance on behalf of the Toronto Stock Exchange, acknowledges that, in response to expressions of interest from third parties to acquire the Company, a process has been established by the Board of Directors of Viterra, which includes confidentiality agreements being entered into and the provision of due diligence.
Viterra is aware of press reports speculating about, among other things, the process, parties involved and third parties expressions of interest of at least Cdn$16 per Viterra common share. Viterra cautions investors not to rely on these press reports as there can be no assurance that a transaction will occur and that if one does occur, there can be no assurance at what price it will be completed.
Viterra has engaged financial and legal advisors to provide support with this process.
A further announcement will be made if appropriate.”
Bloomberg, the Wall Street Journal, the Globe and Mail and others are reporting that Glencore International Plc has made a £3.5 billion ($5.5 billion) bid for Viterra Inc., Canada’s largest grain handler (see e.g.: Glencore in $5.49 Billion Bid for Viterra Telegraph Says).
In reporting this story, Bloomberg said:
“Buying Viterra would give Glencore the largest share of the Canadian grain-handling market just as the Canadian Wheat Board’s monopoly over wheat and barley grown in the west of the country comes to an end. Viterra’s share of Canadian grain- handling may rise to almost 50 percent in the next few years from 45 percent, its Chief Executive Officer Mayo Schmidt said in an interview on March 8.
Viterra said in January it expects to increase grain volumes and earnings after the board’s control of supplies ends. The Canadian government passed a law in December that will end the monopoly and give farmers the choice to sell to other buyers as of Aug. 1.
A deal with Glencore might also help the company’s agricultural business to return to profit after a “difficult year” said Fairfax’s Meyer. Moving into storage of wheat and other logistics beyond just trading grains would likely help boost their margins, he said.
Glencore said Feb. 7 that 2011 adjusted earnings before interest and tax from its agricultural trading unit swung to an $8 million loss from a $659 million profit a year earlier after experiencing an ‘unprecedented cotton market.’”
For more media reports see: WSJ – Glencore, Cargill Looking at Viterra, The Australian – Cargill joins Glencore in circling Viterra, sale process expected, Globe and Mail – Glencore reportedly Viterra suitor
On February 29, 2012, Industry Canada announced that the threshold for review for WTO investors or vendors, other than Canadians, is now C $330 million for 2012 (increased from C $312 million in 2011).
The new threshold was published in the Canada Gazette Part I on February 25, 2012 (see: Canada Gazette).
The monetary threshold for review under the Investment Canada Act (the “ICA”) for WTO investors is both higher than the general thresholds under the ICA, which are $5 million and $50 million for direct and indirect transactions respectively, and increased annually based on GDP growth.
The past year has been a busy one for Canadian competition law.
Developments in 2011 include new cases, enforcement and legislation in most key areas including abuse of dominance (the Competition Bureau’s ongoing challenge of The Toronto Real Estate Board and CREA settlement in late 2010), criminal conspiracy (developments in price-fixing class action litigation and some Bureau enforcement), refusal to deal (several important private access section 75 cases, including a decision of the Federal Court of Appeal), contested mergers (in the waste and airline markets), price maintenance (the merchant fees case involving Visa and MasterCard) and misleading advertising (involving Bell Canada, Rogers and others).
The Competition Bureau is testing the new rules under Canada’s Competition Act, which came into force in 2009 and 2010, and private plaintiffs are creating new law in a number of ongoing competition/antitrust class actions in Canada (principally indirect purchaser price-fixing cases relating to the sale and supply of dynamic random access, or “DRAMs”, high fructose corn syrup and computer operating systems).
At the same time, several new pieces of legislation have been introduced including a federal omnibus crime bill, which will eliminate conditional sentences for some competition law offences, and sweeping new anti-spam legislation (Bill C-28 or “FISA“) that once in force will be among the strictest anti-spam regimes in the world.
The Commissioner of Competition, and other federal enforcement officials including the RCMP, have also expressed intentions to adopt tougher enforcement stances in relation to competition law and other white collar crime.
In general, these developments mean that it remains important for Canadian companies, organizations and their executives to maintain a practical awareness of Canadian competition law.
Some of the key competition law and related developments of 2011 include:
Bloomberg has reported that federal Industry Minister Christian Paradis has again raised the prospect of amending Canada’s Investment Canada Act (the “ICA”) in remarks he made in New York last week (see: Canada Open to Changing Foreign-Takeover Law, Paradis Says).
The Industry Minister’s comments closely follow a C.D. Howe Institute report also issued last week calling for fundamental changes to the ICA to stimulate foreign direct investment in Canada, including a change to the overarching test for foreign investment approval (replacing the current “net benefit to Canada” test with a national interest test) (see: New Publications – C.D. Howe Institute Report – Reforming the Investment Canada Act: Walk More Softly, Carry a Bigger Stick).
Templates/precedents and checklists to run promotional contests in Canada
Templates/precedents and checklists to comply with Canadian anti-spam law (CASL)
