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Providing coverage of Alaska and northern Canada's oil and gas industry
April 2008

Vol. 13, No. 16 Week of April 20, 2008

Foreign takeover blocked

Canada blocks Minnesota firm’s purchase; signals policy shift for foreign acquisitions

Gary Park

For Petroleum News

The Web site for the Canadian government’s ruling Conservative party carried a bold headline “Defending Canada’s National Interest.”

For the first time in 23 years since a previous Conservative government enacted a law governing foreign takeovers of Canadian companies, the administration of Prime Minister Stephen Harper has blocked a deal.

In a startling move, giving new meaning to the term “national interest,” the government rejected a proposed C$1.325 billion sale of MacDonald, Dettwiler and Associates, a Canadian aerospace firm, to Minnesota-based Alliant Techsystems.

Now the question is whether this was pure grandstanding, or an indication of how far Harper will go in pandering to nationalist sentiment.

Industry Minister Jim Prentice, credited with being Harper’s most trusted adviser, said he was not satisfied the sale would likely be “of net benefit to Canada.”

National sovereignty, security cited

He would not elaborate on his reasons, but critics had warned such a takeover would compromise Canada’s sovereignty and national security by giving a foreign company control of taxpayer-funded military technology, notably the Canadarm used in NASA’s shuttle program to assemble the space station and the Arctic observation satellite Radarsat-2, seen as vital to protecting Canada’s disputed claims to Arctic sovereignty.

In a later speech, Prentice declared “we need to own our technology.”

“When it comes to decisions on whether foreign purchases represent a net benefit to Canada, my bottom line is this: Canada must retain jurisdiction and control of technologies that are vital to the future of our industry.”

International Trade Minister David Emerson said Canadian officials in Washington and around the world will explain the reasoning behind the decision to blunt any claims that Canada is suddenly hostile to foreign investment.

Under the 1985 Investment Canada Act, the government is required to examine all proposed purchases of Canadian firms by foreign companies that are valued at C$270 million or more.

According to government statistics, foreign investment in Canada totaled C$449 billion at the end of 2006 — dominated by C$274 billion by U.S., C$39 billion by British and C$29.5 billion by French investors.

Whether the veto of the MacDonald, Dettwiler deal represents a shift of direction will need more rulings.

But Harper signaled a new hard line by telling the House of Commons that “no one should doubt … the determination of this government to protect the Canadian economy and sovereignty.”

No one in government is saying how far this new resolve will extend and whether it will affect deal-making in the natural resource sector.

Prime West Energy sale OK’d

The most recent indication occurred in November when Prentice signed off on the C$5 billion purchase of PrimeWest Energy Trust by state-controlled Abu Dhabi National Energy Co. (better known as TAQA), after determining the transaction would yield a net benefit to Canada.

However, he said the government was “investigating the possibility of a guideline that would ensure that in the context of state-owned enterprises, as with other foreign direct investment other than state-owned enterprises, that issues of transparency, commerciality and governance are dealt with.”

In promising tighter rules to ensure foreign takeovers are done for commercial reasons, not by foreign governments pursuing political objectives, Prentice promised “real teeth” for the industry minister to block transactions that fail to assure net benefits to Canada.

That was interpreted as targeting strategic industries such as energy and mining that have experienced a wave of foreign takeovers by Chinese and Middle Eastern state-controlled companies chasing new supply sources.

Prentice said that in the case of the petroleum industry “we would expect that if a company is making an investment in Canada, that it would be on a commercial basis and that the molecules that are being acquired would be treated according to market principles, they would be part of the energy marketplace that exists in North America and that those molecules would not be subject to political dominion or political decision-making.”

He said the issue of whether Canada should introduce a national security test will be studied separately by a panel that will make its recommendations by June.

“There is sufficient security concern that every other country in the G8 has mechanisms in place to protect the security interest of their country, except for Canada. It does require legislative change and so we are proceeding cautiously,” he said.

In light of the MacDonald, Dettwiler-Alliant Techsystems ruling, Canada’s petroleum industry will be even more interested in the new guidelines.






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