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Ontario urges PM to block foreign Nortel sale

Ontario Finance Minister Dwight Duncan

Mark Blinch

The Harper government is facing growing pressure to intervene in the liquidation of Nortel Networks Corp., but shows no signs of supporting an effort by Research In Motion Ltd. to keep assets of the company in Canadian hands.

In a highly unusual move, Ontario Finance Minister Dwight Duncan joined federal opposition parties in urging Ottawa to act on the Nortel sale, with Mr. Duncan arguing the proposed $1.13-billion foreign acquisition of its wireless division should be blocked.

The Ontario government is spending billions of dollars to encourage the development of high-technology companies in the province, and is dismayed at the prospect of a foreign company benefiting from Nortel's world-beating patents in wireless communication, Mr. Duncan said in an interview.

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The patents are part of a package of assets for which Sweden's Telefon AB LM Ericsson submitted a winning bid in a court-supervised auction that was concluded on the weekend.

"We just think that every step should be taken to try to keep these patents in Canadian hands so that industry can continue to develop here in Canada," Mr. Duncan said.

"These have been developed over time, with enormous federal and provincial tax credits available, and we think it is in the interest of Canada, particularly Ontario in this case, to keep those patents here."

The provincial minister said officials in the Premier's Office are looking at options for the federal government to pursue, and are in discussions with their counterparts in the Prime Minister's Office.

Industry Minister Tony Clement indicated that Ottawa is still mulling its options, though one senior federal official indicated the $1.13-billion acquisition by Ericsson would almost certainly be reviewed under the Investment Canada Act, assuming the court approves it.

"I'm not ruling out intervening and I'm not ruling out not intervening," he told reporters. "Right now, in order to be non-prejudicial or non-prejudged of the issue, I have to keep my options open obviously and make sure that all the facts are before me and the government. That's basically where we are."

After months of relative silence on the issue, federal opposition leaders stepped up the political pressure Monday. Liberal Leader Michael Ignatieff sent an open letter to Prime Minister Stephen Harper, demanding a review of the Ericsson deal, while New Democratic Party Leader Jack Layton scheduled a news conference for Tuesday to demand Nortel's assets remain in Canadian hands.

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In his letter, Mr. Ignatieff urged the government to "immediately undertake a full review of the sale of Nortel Networks' wireless assets to make sure the transaction is in Canada's interest."

The Liberal Leader conceded in an interview last week that the Liberals should have been more diligent in holding the government to account on Nortel. The company filed for bankruptcy protection last January and had indicated for months that the likely solution would be the sale of its assets to foreign buyers.

RIM precipitated a political backlash last week when it complained publicly that it had been prevented from bidding on Nortel assets and urged the government to intervene. Mr. Clement has said RIM had plenty of opportunity to pursue bids for Nortel, dating back to late last year, but that it failed to act.

Still, Ericsson will likely have to win approval from the government under an Investment Canada review.

The threshold for review is $312-million and, while many of the Nortel assets in the package are non-Canadian, it would almost certainly likely trigger a review, a senior government official said.

Under the act, the government must determine whether a foreign acquisition represents a net benefit to Canada.

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Governments have rarely turned down a foreign acquisition under the Investment Canada Act, but typically use the review to wring promises to maintain jobs and investment in the country.

However, a year ago, the Harper government cited national security concerns to reject a proposed $1.3-billion (U.S.) takeover of MacDonald Dettwiler and Associates Ltd. of Richmond, B.C., by U.S.-based Alliant Techsystems.

Ericsson expressed confidence yesterday that this deal will close.

"On the RIM claims, of course, there are some regulatory issues still left to be defined," Hans Vestberg, Ericsson's chief financial officer and incoming chief executive, said during a conference call.

"However, as we can see it right now… we feel confident that this will go through."

Ericsson would also consider financing the deal through the federal Export Development Canada, which had offered $300-million (Canadian) in loans to the Finnish-German joint venture Nokia Siemens Systems in its failed bid for the Nortel assets.

Mr. Clement said Monday that EDC - which operates at arm's length from the government - has indicated it would provide financing for any commercial deal that provides a benefit to Canada.

The Nortel assets give Ericsson a strong base in North America, where it has not had a major presence. Mr. Vestberg said Ericsson's revenue in North America will almost double to $5-billion once the deal closes.

Mark Henderson, president of Ericsson Canada, said the Swedish company has long roots in Canada and is one of country's top spenders on research and development.

"It's been lost in the mix how much Ericsson has invested in Canada," he said.

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