Foreign takeovers will be exception, not rule
Prime minister cautions future investors about oilsands
OTTAWA – Prime Minister Stephen Harper ended months of market uncertainty by approving the foreign takeovers of Calgary-based Nexen Inc. and Progress Energy Resources Corp. — but insisted future appropriations by stateowned firms in the oilsands would become the exception rather than rule.
China’s CNOOC and Malaysia’s Petronas, both Asian state-controlled enterprises, received the OK late Friday as part of a wide-ranging update of foreign-takeover rules.
In future, all state-owned enterprises seeking to buy large Canadian companies will face greater scrutiny about how they operate and how much control their home governments would have over how they do business.
Harper said foreign-state control of oilsands development in particular has reached the point where further control would not be beneficial to Canada.
“When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments,” Harper said at a hastily called news conference.
“The government’s concern and discomfort for some time has been that very quickly, a series of large-scale controlling transactions by foreign state-owned companies could rapidly transform this (oilsands) industry from one that is essentially a free market to one that is effectively under control of a foreign government.”
Harper noted that just 15 companies operate in the oilsands, exposing the industry to greater risk of foreign control after only one or two transactions.
The China National Offshore Oil Co., or CNOOC, launched a friendly $15.1-billion bid for Nexen and its Long Lake oilsands project in July, providing a series of guarantees to the Canadian government on job creation, head office location and corporate governance.
Harper’s announcement was welcomed by Alberta Premier Alison Redford, who had supported the deals.
“We are pleased that the federal government appears to have listened to our input and made a careful examination of the circumstances unique to these proposed arrangements, as did my government, and came to the same conclusion: the benefits are great, and any issues can be mitigated,” Redford said in a statement.
Federal Industry Minister Christian Paradis said in a news release he was satisfied that the deal would be a net benefit to Canada.
Initially, Malaysia’s Petronas $6-billion bid for Progress Energy, which is developing natural-gas lands in northeastern B.C., was rejected by the federal government and the company later revised its proposal.
Paradis said the company made “significant commitments” in several areas that satisfied him the deal was a net benefit to Canada.
In revising the guidelines for stateowned enterprises, the Conservatives answered complaints the rules were too vague to provide certainty for investors.
At the same time, they responded to Canadians’ concerns about the implications of allowing foreignowned firms to play a major role in Canada’s natural resources sector.
The federal government made three major changes to the foreign investment guidelines Friday.
First, it increased the threshold for review under the Investment Canada Act for takeovers by foreign private investors to $1 billion from $330 million. But the $330-million threshold will remain in place for state-owned enterprises.
The changes also gave the industry minister the ability to extend the time available to conduct a national-security review of proposed investments. The CNOOC deal did not trigger a security review.
But the biggest change comes for state-owned enterprises, with the government elaborating on how proposed bids from those companies will be handled in future.
They set out five specific elements that investors will need to demonstrate for the government to consider approving a proposal. At the top of the list is that the investment is commercially oriented and that the investor is free from political influence.
New Democrat natural resource critic Peter Julian was immediately dismissive of the announcements, saying there should have been consultations with Canadians.
“Today they’re trying to sugarcoat something that I think will be a rather bitter pill,” he said. “This is a farce. While Conservatives admit that under the new rules this transaction is not a net benefit to Canadians, they have approved it anyway.”
But the head of a major business lobby applauded the decisions, noting Canada needs foreign capital.
“The decision to approve the acquisitions of Nexen Inc. and Progress Energy Resources Corp. sends a positive signal to investors in Canada and around the world,” said John Manley, president of the Canadian Council of Chief Executives.
“Canada’s population is small relative to those of the other major advanced economies, and we have a tremendous need for capital to develop our industrial base and achieve our potential as a leading exporter of energy and advanced energy technologies.”
Shares in Nexen and Progress fell Friday after news broke that a decision was likely pending and investors placed their final bets on what the outcome would be. Nexen stock closed down $1.58 or about six per cent at $23.29 on the Toronto Stock Exchange, while Progress shares closed down 88 cents or about four per cent at $19.37.
CNOOC has agreed to pay $27.50 per share for Nexen, while the Petronas-Progress deal is for $20.45 per share.