Province says no to BHP
REUTERS/David Stobbe
The Rocanville Potash Corp mine
Peter Koven, Financial Post · Tuesday, Oct. 19, 2010
Saskatchewan has rejected the proposed takeover of Potash Corp. of Saskatchewan Inc. after BHP Billiton Ltd. refused to meet the province’s demands, putting the $40-billion offer in jeopardy and leaving the federal government with a difficult decision.
For weeks, the Saskatchewan government has expressed doubt that BHP’s bid for Potash Corp. would provide a “net benefit” to the province. But Tuesday, a source familiar with the transaction confirmed that Saskatchewan will recommend that Investment Canada reject the bid, citing concerns about loss of tax revenue.
It is further understood that in order to win the province’s support, BHP was told to make an unprecedented one-time tax payment of more than $1-billion, plus hundreds of millions of dollars in infrastructure payments. BHP balked at those demands, leaving the takeover offer in limbo.
BHP was astounded that Saskatchewan would make such an extraordinary demand.
Despite Saskatchewan’s rejection, BHP remains confident the federal government will support the bid, since it sees no reason why the offer should fail the net benefit test. Investment Canada is expected to make its decision on Nov. 3, though that deadline could be extended.
“By any historical measure, this transaction provides net benefit,” the source said.
To win federal approval, BHP is expected to stress that Canadian mining companies invest billions of dollars abroad, and that Canada is supposed to be open to the kind of foreign investment that BHP wants to make.
Prime Minister Stephen Harper is now left with a tricky decision: A rejection of BHP could seriously damage Canada’s reputation as a good place to do business. But allowing the takeover to go through could erode Conservative support in one of its key jurisdictions, while furthering complaints that Corporate Canada is being “hollowed out” under his watch.
Along with Mr. Harper, Saskatchewan Premier Brad Wall has also been a champion of free markets and foreign investment.
Saskatchewan government officials have repeatedly expressed concern about loss of tax revenue from BHP’s plan to exit the Canpotex marketing group. It is also understood Saskatchewan is worried about tax write-offs on BHP’s Jansen project that could occur as a result of the transaction, and interest costs associated with the bid.
While BHP acknowledged its offer could reduce tax revenue in the short term, it also tried to stress that those would be made up over time. It is also understood BHP tried to negotiate a compromise with the government around the timing of tax payments and potential foregoing of tax benefits.
When the Conference Board of Canada commented on the proposed Potash Corp. takeover earlier this month, it warned that provincial opposition to a Potash Corp. takeover could mean major reputational risk to Saskatchewan, and would be seen as undermining the rights of shareholders to sell their shares to the highest bidder.
While Investment Canada is ultimately responsible for regulatory approval of the takeover, provincial objections will certainly have a bearing on BHP’s fate, said a source familiar with the deal. “Undoubtedly, they will be giving significant weighting to what the province of Saskatchewan says,” the source said. “It’s a negative development of some magnitude but probably not fatal.”
Financial Post, with files from Tim Shufelt
pkoven@nationalpost.com
Read more: http://www.financialpost.com/news/Province+says/3695838/story.html#ixzz12tiZ0W7i
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