Bloomberg News

Canada’s Harper Faces Less Pressure to Stop Viterra Takeover

March 13, 2012

Canadian Prime Minister Stephen Harper, whose government blocked a hostile takeover bid for Potash Corp. of Saskatchewan Inc. in 2010, may face less pressure to reject any sale of Viterra Inc. (VT)

Viterra, Canada’s biggest grain handler, may not be viewed as a strategic asset and its sale won’t create a public outcry, Canadian politicians and analysts at Raymond James said yesterday.

“This doesn’t fit our own definition of a strategic resource,” in the same way Potash did, Saskatchewan Premier Brad Wall told reporters in Regina.

Wall led opposition to BHP Billiton Ltd. (BHP)’s bid for Potash Corp., which Harper rejected on grounds it wasn’t in Canada’s interest to sell the fertilizer maker, sparking concerns about the country’s openness to foreign investment.

Baar, Switzerland-based Glencore International Plc, (GLEN) the world’s largest publicly traded commodities supplier, has expressed an interest in Viterra, according to a person familiar with the situation. Closely held grain distributor Cargill Inc., based in Minneapolis, has also expressed an interest, the Wall Street Journal reported, citing people it didn’t identify.

Viterra has surged 32 percent since the company said March 9 it had received approaches from third parties.

When asked yesterday about reports Glencore has expressed interest in Viterra, Canadian Industry Minister Christian Paradis said the Conservative government “understands the importance” of attracting foreign investment. Paradis didn’t mention either company in his response.

“Our government will continue to welcome investment that benefits Canada,” the minister said.

Won’t Create Outcry

Liberal Party lawmaker Ralph Goodale, his party’s sole member from Saskatchewan and an opponent of the Potash transaction, said the sale of Viterra is unlikely to create as much public outcry because its operations are more global and the company isn’t as strategic to the province.

“A key issue here is how much do ordinary citizens care about this and do they have the same passion as they did with Potash,” said Goodale, deputy leader of the opposition Liberals, the third-largest party in Parliament. “I suspect there are some differences that will make it less likely people will get as driven on this one.”

Goodale said he wouldn’t “speculate” on whether his party would oppose any deal unless they had details of a transaction.

Raymond James analysts Steven Hansen and Arash Yazdani said in a report yesterday that rejection of a Viterra bid is “a less likely outcome,” citing the grain handler’s diversified asset base compared with Potash and the focus of its assets on infrastructure rather than non-renewable resources.

Deregulation a Priority

The analysts said there is no threat to a global marketing agency with implications for government revenue. Harper has made deregulation in the industry a priority and would have already considered the possibility of global consolidation.

The risk of the government blocking a Viterra bid “is relatively low” because the company may not be viewed by the government as a purely Canadian business, analysts at BMO Capital Markets said. Only 30 percent of the company’s sales last year were generated in Canada.

Regina-based Viterra bought Australia’s ABB Grain Ltd., the nation’s largest barley exporter, in 2009 to expand sales in the region.

Jason Zandberg, a Vancouver-based analyst for PI Financial Corp., said in an interview that Viterra’s port terminals may draw some government scrutiny, though any concern could be eased by divesting those assets.

“I don’t think we are going to have a Potash situation here,” said Zandberg, who has a “buy” rating on Viterra.

Deliberate Review

When Viterra acquired Australia’s ABB Grain it was allowed to buy all of the port facilities in that country, Zanberg said.

Wall said his government will review any takeover bid for Viterra in the same way it approached the BHP Billiton bid for Potash, by looking at its impact on government revenue and jobs.

“It’s important that everyone know as we go forward that Saskatchewan will be engaged in the process in a deliberate way and we would ask the question, is this a net benefit to Saskatchewan and Canada?” the premier said. The fact that his government recently opposed the Potash transaction wouldn’t play a factor in the review, he said.

The New Democratic Party called on Harper to block any foreign takeover of Viterra because it will lead to the loss of Canadian control of the industry. Viterra was established as a cooperative in 1924 to handle grain delivered by farmers and went public in 1996.

Independence

“We’re losing independence in the agricultural sector in Canada, and from a strategic industry point of view, I think the government should be concerned,” Pat Martin, an NDP lawmaker, said in a March 9 telephone interview. “Prairie farmers will turn into more like prairie serfs if they’re dictated to by the agri-food giants.”

Harper has tried to reassure potential investors that Canada remains open to foreign takeovers, claiming his rejection of the Potash bid stemmed from unique circumstances.

The federal government reviews foreign acquisitions of companies with assets valued at more than C$330 million under the Investment Canada Act, and can reject transactions that don’t provide a “net benefit” to Canada.

Canada’s system for weighing takeovers is “highly subjective and unpredictable,” the Toronto-based C.D. Howe Institute said in a study released in December. The rules may have contributed to the decline in Canada’s share of global foreign-direct investment, it said.

Canada’s Interest

“I think the objectives of BHP, in fairness, probably were beyond merely what we would consider good business in a market sense, but probably more an issue of strategic positioning, and that strategic positioning was obviously not in the interest of the Canadian economy,” Harper said in a Sept. 21 interview with Bloomberg News in New York.

In the interview, Harper also said that Canada will “proceed with caution” as it considers allowing more foreign takeovers, wanting to ensure they don’t lead to a loss of head office jobs or declining industry leadership.

Any bid to acquire Viterra may also require approval from Canada’s competition bureau. Viterra’s share of the Canadian grain-handling market may rise to almost 50 percent in the next few years from 45 percent, Chief Executive Officer Mayo Schmidt said in an interview March 8.

Holly Gibney, a spokeswoman for Viterra, declined to comment and referred to the company’s March 9 statement in which it said it had received expressions of interest.

A spokesman for Glencore declined to comment. Lisa Clemens, a spokeswoman for Cargill, declined to comment.

To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net; Chris Wellisz


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