Foreign buyers eye Canadian opportunities
In the wake of a study that found Canadian companies to be more vulnerable to unsolicited takeovers than their U.S. and European counterparts, we survey some of the experts in the field. According to them, it’s all part of operating in a global economy.
“There is no such thing as a purely domestic transaction. Even if the eventual buyer is domestic, you’ve generally contacted and had serious interest from a number of companies from outside of Canada,” says Boris Novansky, director, Mergers & Acquisitions, Cormark Securities Inc.
The major change he is seeing, says Mr. Novansky, is in interest from Asia, particularly China and India. “Especially in industries such as resources, manufacturing and business services, many Asian companies are looking to grow through acquisition and are setting their sights on Canadian targets.”
Does the Canadian legislative framework make Canadian companies vulnerable to hostile foreign takeover? “A high proportion of Canadian companies that have an unsolicited takeover bid made for them do eventually go through a change of control,” says Mr. Novansky. “Canadian legislation favours maximizing shareholder value. I think boards take the view that, rather than ensuring that the company stays independent, it is their obligation to make sure that any deal they eventually agree to is the best possible transaction for shareholders.”
Then the risks lay in the possibility of a failed deal, as dramatically exemplified recently by the Ministry of Industry’s confirmation that it would block the $1.3-billion sale of MacDonald Dettwiler and Associates Ltd.'s space division.
Denis Gascon, partner at Ogilvy Renault LLP, says, “Canada is one of few countries in the world without a specific national security provision in its foreign investment regulation. The difficult issue is how you define national security – is it only defence related, or should it extend to infrastructures, transportation or even natural resources? But definitely, we should expect something in the way of national security regulation in
Canada in the near future – Canada will put itself in line with what we’re seeing in other jurisdictions.”
This legislative harmonization is part of the growing globalization trend, says Mr. Gascon. “According to a recent Statistics Canada report, foreign investments increased in Canada to record levels in 2007, but at the same time, investments abroad by Canadians still remained slightly higher.
Globalization means we’re seeing more and more harmonization between the various regimes throughout the world.”
Patricia Olasker, partner at Davies Ward Phillips & Vineberg LLP, says that a significant trend to watch is the interest of
Chinese state-owned enterprise in Canadian business. “It began slowly, around 2005; about this time last year, we saw Chinese enterprises really going on a shopping spree in the Canadian resource sector.”
In contrast to western buyers, China’s state-owned enterprises are flush with cash and have ready access to financing, she says. “Couple that with their particular need for resources, and it puts them in a class by themselves.”
While the primary risk to these transactions was once seen to be the Chinese bureaucracy, that is no longer the case. “The new issue is Canadian government approval, the guidelines under the Investment Canada Act that give the government broader powers to restrict foreign acquisition by state-owned enterprises, where there’s a concern that the objectives are not purely commercial.
The new area of concern for Canadian companies dealing with Chinese acquirers is, ‘will this be the transaction that gets stopped at the border?’” says Ms. Olasker.
To date, transactions by the Chinese in Canada have been in the resource sector. “This will continue, but it won’t stop there,” she says. “I think we’ll begin to see the Chinese appetite for Canadian acquisitions expand into financial services, technology and the industrial sector. This is a quest for resources, but also for investment returns, expertise and experience.”
