Prime Minister Stephen Harper welcomed efforts by Glencore International Plc (GLEN) to keep assets in “Canadian hands” through its proposed $6.1 billion takeover of Viterra Inc. (VT), calling foreign interest in the country’s grain sector a “tremendously good thing.”
The government’s main concern is the ability of farmers to “retain choice in terms of their marketing options,” Harper said at a news conference today in Tokyo after meeting with Japanese Prime Minister Yoshihiko Noda.
“My understanding of the deal is that many of the assets will actually remain in Canadian hands, so I’m not sure it really would be categorized at this point as primarily a foreign investment,” Harper said.
Glencore has teamed with Canadian companies to acquire Viterra, Canada’s biggest grain handler, in a strategy that may help the acquisition clear a review by the federal government under the nation’s foreign-takeover law.
As part of the transaction, Calgary-based Agrium Inc. (AGU) will acquire about 90 percent of Viterra’s Canadian retail facilities. Glencore has also agreed to sell assets to Richardson International Ltd., a unit of Winnipeg-based James Richardson & Sons Ltd.
The alliance with Canadian companies may help Glencore avoid the political backlash faced by BHP Billiton Ltd. (BHP), which had its takeover of Potash Corp. (POT) of Saskatchewan Inc. rejected by the government in 2010. “The most important thing is that it does show with the reforms we’re making to the grain sector, how much interest there is now in the expansion of the grain sector and the agriculture sector in Canada, and I think that’s a tremendously good thing,” Harper said.
The federal government passed a law last year that will end the Canadian Wheat Board’s monopoly and give farmers in western Canada the choice to sell wheat and barley to other buyers as of Aug. 1. Farmers have been required by law to sell the grains to the Wheat Board under a system the government created to stabilize prices.
Under the Investment Canada Act, the federal government reviews foreign acquisitions of companies with assets valued at more than C$330 million ($330 million).
The government’s rejection of BHP Billiton’s proposed acquisition of Potash was only the second time a foreign takeover has been scuttled under the act, which has been in force since 1985.
Harper’s Conservative government also blocked a bid by Minneapolis-based Alliant Techsystems Inc. (ATK) in 2008 to acquire the aerospace division of Vancouver-based MacDonald, Dettwiler and Associates Ltd.
Harper said the fact that only two takeovers have been rejected demonstrates his government’s “general openness to foreign investment.” It is only under “very rare and very particular circumstances” that the government finds that foreign acquisitions aren’t in Canada’s national interest, he added.
“As long as we have a foreign investment review process in Canada, there will always be some degree of uncertainty,” the prime minister said. “We are committed to the concept, we’re committed to having foreign investment in Canada, but we’re also committed to the concept that that investment has to be reviewed and we have to assure ourselves that it’s in the best interests of this country.”
Harper said in a Sept. 21 interview with Bloomberg News that Canada will “proceed with caution” as it considers opening its doors to more foreign takeovers, making sure they don’t lead to a loss of head office jobs and declining industry leadership.
Canada’s policy for weighing takeovers is “highly subjective and unpredictable,” the Toronto-based C.D. Howe Institute said in a study released in December. The system, which is more restrictive than in countries such as Australia, may have contributed to the decline in Canada’s share of global foreign-direct investment over the last 30 years, said Philippe Bergevin and Daniel Schwanen, the study’s authors.
The C$16.25-a-share offer announced by Baar, Switzerland- based Glencore will also require approval from Canada’s Competition Bureau, which said it would be reviewing the proposed transaction.
Saskatchewan Premier Brad Wall said in a March 22 interview with Bloomberg that Glencore’s bid raises concerns about reduced competition in the market for crop inputs such as fertilizer, which Agrium sells at its retail outlets.
Wall said March 12 Viterra isn’t “strategic” for Saskatchewan like Potash, though his government will review any takeover bid for the grain handler to make sure a sale benefits the province.
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