New rules for foreign takeovers
Harper calls support for Nexen and Progress deals ‘the end of a trend’
Canada is open for business, but is not for sale to foreign governments, Prime Minister Stephen Harper says after he approves the sale of petroleum producer Nexen to China’s CNOOC. Future takeovers of a Canadian oilsands business by a foreign state-owned company will face more stringent criteria.
OTTAWA — Canada is open for business and foreign investment — but is not for sale — the federal government declared Friday in approving CNOOC’s $15.1-billion takeover of Nexen, while warning that state-owned enterprise take overs of oilsands companies will only be permitted on “an exceptional basis only.”
In announcing its approval of the CNOOC-Nexen transaction, the government introduced a series of grittier rules for acquisitions of Canadian companies by stateowned enterprises (SOEs).
Ottawa also approved a $6-billion takeover bid by Malaysian national energy company Petronas for Calgarybased natural gas producer Progress Energy Resources.
With its decision, the government signalled it welcomes foreign investment, but state-owned enterprises must answer to a different set of rules and that Canada’s natural resources — especially the lucrative oilsands — won’t be raided by SOEs that may have interests beyond commercial objectives.
The government says new rules for state-owned firms are necessary because it does not want to see Canadian in- dustries transformed from operating on a commercial basis to under the control of a foreign state.
“When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments,” Prime Minister Stephen Harper said Friday.
“Canadians generally, and investors specifically, should understand that these decisions are not the beginning of a trend, but rather the end of a trend,” he added.
The government spent months reviewing China National Offshore Oil Corp.’s (CNOOC) proposed takeover of Calgary-based petroleum producer Nexen, and whether the deal offered a “net benefit” to Canada — a broadly defined test under the Investment Canada Act.
The takeover bid sparked heated debate, including within the Conservative cabinet and caucus, about how much foreign investment Canada should allow when it comes to strategic natural resources such as oil and gas.
As part of the overhaul of its foreign investment rules, the government introduced a series of stricter new criteria for takeovers by state-owned enterprises such as CNOOC and Petronas.
Going forward, foreign takeovers of a Canadian oilsands business by a stateowned firm will be found to be of net benefit “on an exceptional basis only,” the government announced.
“In light of growing trends, and following the decisions made today, the government of Canada has determined that foreign state control of oilsands development has reached the point at which further such foreign state control would not be of net benefit to Canada,” Harper said.
“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 compan- ies could rapidly transform this industry from one that is essentially a free-market industry to one that is effectively under control of a foreign government.”
The federal industry minister will now closely examine SOE transactions.
The government is also introducing new measures that will allow the industry minister to extend the timelines for national security reviews, while keeping the net benefit threshold for SOE investments at $330 million in asset value.
The current review criteria for foreign investments by private companies will remain in place, as will plans to increase the review threshold to $1 billion over the next four years.
“Canadians have not spent years reducing the ownership of sectors of the economy by our own governments, only to see them bought and controlled by foreign governments instead,” Harper said.
The decision to approve the two takeover bids — especially CNOOC’s acquisition of Nexen — will undoubtedly be controversial, including inside the government.
At least a couple of cabinet ministers, as well as a number of other Tories in the wider caucus, were believed to have opposed the acquisition, the largest foreign takeover by a Chinese firm. Some Conservative MPs are worried about letting Chinese state-owned companies acquire such a large stake in Canada’s resource sector.
Opposition parties had mixed reactions to the decision and new set of investment rules.
NDP natural resources critic Peter Julian described it as a “badly botched file,” saying it is sad the decision doesn’t appear to protect Canadian interests or provide clarity on foreign investment rules.
“The reality is what this government is trying to do is sugar-coat a decision that I think many Canadians will find very bitter to swallow,” Julian said during a conference call with reporters.
The Liberals said Friday’s announcement is problematic because the government gave few details of the Nexen takeover, including whether Canada will be able to have increased access to Chinese markets and companies.
There doesn’t need to be 100 per cent reciprocity, but Canada should receive some level of give from the Chinese, Liberal MP John McCallum said.
Nexen shareholders voted overwhelmingly in September to approve the takeover, along with its 61 per cent premium on the price of the company’s shares.
The government initially blocked the Petronas deal because it didn’t meet the “net benefit” test under the Investment Canada Act.