Saskatchewan's support for a takeover of Potash Corp. of Saskatchewan Inc. will rely on the advice of the Conference Board of Canada, an independent consultant that has raised red flags in the past about state-owned entities taking over Canadian companies.
The province has hired the national think tank to review the economic impact of a takeover of one of its prize companies, while bankers press to find a rival bid - possibly led by Chinese interests - to top mining giant BHP Billiton Ltd. 's $38.6-billion (U.S) hostile offer.
The key issue for the conference board will be how global potash prices will be affected by a potential new owner of Saskatoon-based Potash Corp., the world's largest fertilizer firm. Saskatchewan's fortunes are closely tied to the crop nutrient since it's home to half of the world's potash resources, and represents about 30 per cent of global production.
The province is hoping any new owner of Potash Corp. will help keep prices strong, in turn helping it earn higher revenues through royalties and tax revenues.
"For me that's a really important issue: How to protect Saskatchewan's interests when it comes to the best price possible," said Glen Hodgson, the conference board's chief economist who will be working on the review. "That is arguably the trickiest issue."
The review won't include recommendations, but will instead outline risks and opportunities of a bid, based on various scenarios. The province is expected to use the information, due at the end of this month, to determine if it supports a takeover, and whether new legislation needs to be put in place to ensure its interests are protected. While the province doesn't have the power to stop a bid, it can influence Ottawa's decision on whether or not to approve a takeover based on its "net benefit" to Canada.
"We have to find the balance between the importance of protecting (our) interests … and our desire to have a very dynamic growing economy as we do, and one that has a good business climate," Saskatchewan Premier Brad Wall said in an interview.
Saskatchewan already has legislation in place to ensure Potash Corp.'s head office and many of its key managers remain in the province.
In a 2008 report on corporate takeovers and the so-called "hollowing out" of Canada, the conference board said the effects are often "positive" for shareholders and either "mildly positive or neutral" for operations, capital, people and communities.
When it comes to takeovers by state-owned companies, the 2008 report warned additional regulation may be needed "since they may cross the line between commercial and political actions, and make decisions that are not driven by commercial considerations."
"Canadians are right to pay attention to the possibility of M&As [mergers and acquisitions]by state-owned industries," the report said.
Saskatchewan officials expressed concern this week that a state-owned company - with a goal of securing food and fertilizer for its population - would overproduce and drive down the price of potash. That would result in lower revenues for the province.
"It's a thorny issue because, frankly, you don't want to discriminate against any foreign investors across the board," Mr. Hodgson said.
Potash Corp. has rejected BHP's all-cash offer of $130 (U.S.) per share as too low, and said it's in discussions with other potential bidders. Chinese state-owned companies are considered the best bet for a possible rival bid, given their financial heft and need to increase crop yields to feed a growing population. Any bid is expected to include a consortium of companies that would help China's chances of getting necessary approvals from Ottawa.
New light was shed on the efforts to accomplish that Thursday, when Alberta's provincial investment manager said it has been approached by several parties who have urged it to help buttress a competing Chinese bid for Potash Corp.
"A number of intermediaries are doing the rounds of the pension funds, trying to assess their interest in being part of a group to work with Chinese entities to take this over," Leo de Bever, president of Alberta Investment Management Corp., said in an interview.
"The idea would be the Chinese on their own wouldn't be able to make this call because there would be opposition to that. But if we had Canadian pension funds involved, it would be a lot better."
Mr. de Bever said the discussions were preliminary, and that neither a price nor a lead bidder were disclosed, despite the interest by entities such as Sinochem Group, which owns Chinese fertilizer assets. He did not disclose which "intermediaries" have approached Aimco, which has so far rejected the entreaties.
"Basically my answer was that the economics don't make a whole lot of sense to us. Our assessment is that the current price that you'd have to pay is high."