It has been more than a year since top politicians in Ottawa said that they would clarify the Investment Canada Act, in the wake of the government's surprising decision to reject BHP Billiton's proposed takeover of Potash Corp. But that hasn't happened yet, and that could be an issue for the Conservatives if a hostile bidder descends on Research In Motion Ltd. .
The Act has been on the books for decades, but had never been used to block a takeover by a foreign investor until recent years, when Ottawa rejected both BHP's proposal in 2010 and Alliant Techsystems' bid for MacDonald, Dettwiler and Associates in 2008. As Norton Rose lawyer Derek Burney put it in a recent paper, "The concern is that Canada has become protectionist and will review transactions through a political lens with a sharp domestic-preference focus, rather than an international business and investment focus."
Whether or not it's valid, the concern is real. And if Ottawa were to reject another high-profile acquisition in the near future without providing more clarity on exactly how it is making its decisions under the Investment Canada Act, it would not only seal this reputation but could put a real chill on foreign investment in the country.
The Act requires the industry minister to weigh in on deals that are worth more than $312-million, and ensure that they provide a net benefit to Canada. But the "tests" used to determine if the acquisition would be of net benefit are largely subjective, allowing domestic politics to play a large role in the decision-making process.
The government was spared the need to make a decision on the London Stock Exchange's recent bid for the TMX Group, when LSE backed away after it became clear it did not have enough support from TMX's shareholders. But people involved in the TMX saga say that politicians made it clear in closed-door meetings that they were loath to reject another bid in the wake of Potash.
While the government has been procrastinating on the review of the Investment Canada Act, RIM's stock price has been tanking and its competitors' interest in the firm has been piqued. It's presumed that any bid at this point would have to be hostile, because the company's founders are far from eager to sell. The most likely bidders appear to be American, while Chinese cellphone companies are also potential contenders. Either way, Ottawa will be on the hot seat if one of these firms decides to make a real hostile play for RIM.
To some degree, it already is. New York Times reporter Ian Austen recently wrote that RIM is a point of pride for the Canadian government, "which has been increasingly reluctant to let foreign companies buy major domestic corporations."
Reporters asked Prime Minister Stephen Harper about RIM in December, and he noted that the high-tech sector is important to Canada. "Obviously there are opportunities and there are challenges for management to address, but we all know this is an important Canadian company," Mr. Harper said, according to Dow Jones.
Given that status, RIM enjoys the kind of access to Ottawa that you might expect. Its officials had meetings in the second half of last year with finance minister Jim Flaherty, the Prime Minister's chief of staff Nigel Wright, and Sean O'Leary, a policy advisor at Industry Canada, among others, according to the lobbyist registry.
If the government does find itself called upon to protect RIM, it will be in a bind – one that could have serious implications for the Canadian economy if the government's actions heighten the notion that the country does not welcome foreign investment. By clarifying the Investment Canada Act before that happens, politicians would at least be able to give more assurance to the market that there is a method to their decisions and a rationale that is not reliant on local politics.