Bloomberg News reported yesterday that in an interview given on September 21, Canada's Prime Minister Harper confirmed that capital from China and other countries is welcome provided that acquisitions of Canadian businesses are “economic in nature and don’t have other strategic or political objectives”. Bloomberg quoted the Prime Minister as saying "[a]s much of an advocate as I am of free markets, I don’t think that governments realistically can just make the assumption that everybody else is operating on a market basis."
With respect to the BHP-Potash transaction that was rejected under the Investment Canada Act the Prime Minister stated: "If it had been in Australia, to put the shoe on the other foot, I don’t believe that takeover would have been approved. ... 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.”
While it is reasonable to expect that most transactions will not involve strategic or political objectives that may raise issues under the Investment Canada Act, the Prime Minister's comments underline the importance of an early assessment of the potential for planned transactions to attract the heightened scrutiny of the Canadian government. This has been understood at least since the China Minmetals - Noranda transaction discussions in 2004 and was confirmed in the State Owned Enterprise Guidelines issued by Industry Canada in 2007. The SOE Guidelines make specific reference to the Canadian government's need to be satisfied that Canadian businesses that are acquired by non-Canadians will continue to operate on a commercial basis. The Prime Minister's comments in relation to BHP suggests that strategic actions by non-state owned enterprises may also attract government scrutiny, underlining the need for assessment and planning to satisfactorily resolve such issues and successfully complete acquisitions of significant Canadian businesses.