National Post (National Edition)
FINANCIAL POST
AECON DEAL WITH CHINA TO FACE SCRUTINY FROM OTTAWA .
The takeover of Calgarybased construction company Aecon Group Inc. by China’s CCC International for $1.5 billion will face scrutiny from Ottawa, including a test of whether the sale provides a “net benefit” to Canada.
But it is unlikely to have to weather the bumpy and ultimately frustrating ride experienced by other foreign investors in recent years, thanks to a softening tone from the Liberal government of Justin Trudeau.
A handful of foreign takeovers subjected to such probes under provisions of the federal Investment Canada Act were rejected by the previous Conservative government of Stephen Harper — notably the attempted acquisition of Saskatchewan’s
Potash Corp. by Anglo-Australian mining giant BHP Billiton Ltd.
“We’ve seen Trudeau be much more positive on foreign investment,” said John Emanoilidis, co-head of the mergers and acquisitions practice at Toronto-based law firm Torys LLP. “In particular, (he) seems to have less philosophical concern about investment from China.”
The proof, Emanoilidis said, is in the recent approval of two controversial investments involving Chinese firms: conglomerate Anbang Insurance Group Co. bought Vancouver-based Retirement Concepts, and Hytera Communications Co. purchased satellite communications firm Norsat International Inc.
“Both transactions were approved despite widespread negative media coverage,” Emanoilidis wrote in recent a note with two of his colleagues.
The Norsat transaction is particularly noteworthy because the firm manufactures satellite and telecommunications products for the defence industry, which means it could have been challenged on the basis of national security concerns in addition to facing the “net benefit” test.
Such a challenge could have been bolstered by the fact that two former directors of the Canadian Security Intelligence Service were among the critics of the deal, Emanoilidis said in an interview.
The Retirement Concepts transaction had controversy of its own, including the detaining in June by Chinese authorities of the chairman of buyer Anbang. But even this didn’t cause the Canadian government change course and reverse the recent approval of the transaction.
By “erring on the side of allowing such investments,” Trudeau’s government appears more willing than his predecessor’s to take on political risk and go against popular opinion, Emanoilidis and his colleagues said in their note.
Though this could be tempered in the run-up to the next federal election, “for now they are providing foreign inbound investors with a more open and transparent future, one which could become the defining trait of Trudeau-era foreign investment review,” they wrote.
Emanoilidis, who is not involved in the Aecon deal, said he doesn’t see anything that suggests the transaction with China’s CCCI will be blocked.
The all-cash deal, at $20.37 per share, represents a 42-per-cent premium to where the shares were trading in late August when the company confirmed it had engaged financial advisers to explore a potential sale.
In announcing the deal Thursday, the companies said Aecon would retain its name, and would remain headquartered in Canada and led by its Canadian management team.
The release said benefits to Canada would include greater access to capital for Aecon and the ability to bid for large and more complex projects in Canada, enhancing domestic competition for construction services. The new owner also pledged to continue Aecon’s corporate social responsibility and sustainability policy.
In a note to clients, National Bank Financial analyst Maxim Sytchev said he doesn’t envision “any hurdles” to the completion of the deal, which has unanimous support from Aecon’s board of directors.
Fewer foreign investments are expected to face scrutiny by Ottawa under Trudeau, whose government increased the financial threshold that triggers such reviews earlier this year. Transactions will now be reviewed automatically if they have an enterprise value of $1 billion, up from $600 million.
What’s more, the Liberal government has streamlined the approach to reviews of investments in certain “cultural” businesses, and issued guidelines outlining the approach it will take to national security reviews, according to the lawyers at Torys. The latter is expected to provide potential buyers with an opportunity to better assess the risk before making a bid or entering a transaction.
Under Harper, “an unprecedented number of deals were blocked, restructured or subjected to substantial undertaking commitments,” using both the net-benefit and national-security provisions, according to note written by Emanoilidis and his colleagues.
These included the 2013 rejection of a takeover of Manitoba-based MTS Allstream by Egypt’s Accelero Capital Holdings. The federal government of the day cited “unspecified” national security issues, according to Manitoba Telecom Services, which owned MTS.
In 2008, Ottawa blocked the $1.3-billion sale of a unit of Vancouver-based MacDonald Dettwiler to Virginia-based Alliant Techsystems Inc., saying the transaction did not meet its “net-benefit” test.
Two years later, in 2010, it blocked the purchase of Potash Corp., a former Saskatchewan Crown Corporation, for the same reason.
“The net-benefit rejections were highly unusual,” Emanoilidis said.