BHP Billiton Ltd. appears confident it can win Ottawa's approval for its hostile takeover of Potash Corp. of Saskatchewan Inc., despite massive political resistance to the foreign control of a strategic component of the global food chain, in a ruling that is expected this week.
Negotiations between the Australian company and Investment Canada wrapped up on the weekend, but sources said Sunday that Industry Minister Tony Clement had yet to rule on whether BHP's $38.6-billion (U.S.) acquisition of the Saskatoon-based fertilizer company represents a "net benefit" to Canada.
BHP executives believe the deal provides enough benefits to Saskatchewan and Canada - through commitments of new investment, the relocation of head office jobs to Saskatoon, and the structuring of the deal to protect provincial revenues - to meet Investment Canada's net benefit test. BHP has also vowed to make its commitments public and agreed to independent monitoring and enforcement mechanisms to counter concerns it will fail to live up to its promises.
However, many political and market observers expect the Conservative government to reject the deal and accept Premier Brad Wall's argument that it is not to Canada's benefit to cede control of a strategic resource to a multinational corporation whose interests may diverge from those of the people of Saskatchewan who own the resource.
Mr. Clement was clearly concerned about the loss of another Canadian corporate champion, after the selloff of Inco, Falconbridge, Alcan and Stelco over the past five years, and the dubious record of their foreign acquirers in keeping commitments made to Investment Canada.
Former Liberal industry minister John Manley gave the deal a 70-per-cent chance of being blocked due to political resistance, though he argued Ottawa would be damaging the country's international reputation by doing so.
Mr. Wall had talked about visiting Ottawa this week to further lobby against the deal, but decided to stay home after the federal government said it had received all of the necessary information on the takeover and was "not receiving any further representations on the matter," according to a statement released by the province on Sunday.
Sources close to BHP said negotiations went well with Investment Canada, but acknowledged the possibility of a last-minute rejection from Mr. Clement. Both sides are eager to announce the decision as soon as possible to reduce the potential for market-moving leaks or insider trading. The official deadline is Wednesday.
Should BHP win approval from Ottawa, it will almost certainly have to increase its $130 (U.S.) per share bid to win approval from Potash Corp. shareholders, particularly given that the stock is currently trading around $145.
Ottawa's decision is being watched closely by Potash Corp. investors who worry about the fallout of a blocked deal, but some analysts believe a rejection won't cause much damage to the share price.
"We continue to expect Canada to turn down BHP's bid, but we don't expect the stock to take a dive on that news," analysts at Credit Agricole Securities wrote in a recent research note.
"With potash on allocation, restocking of inventories beginning, and prices rising in every region, strength of the recovery is evident, and negotiating power with China is probably at a new peak," they wrote.
With files from Boyd Erman