The Canadian government has blocked BHP Billiton's $39bn bid for one of the country's biggest miners, PotashCorp of Saskatchewan, bowing to gathering protectionist sentiment over the deal.
Industry minister Tony Clement said he did not believe the acquisition by BHP Billiton would be of "net benefit" to Canada, aligning the federal government with the premier of Saskatchewan province, which claims the deal jeopardises $6bn in annual royalties and taxes. Foreign takeovers worth more than C$299m are subject to the "net benefit" test.
The rejection is a preliminary ruling that becomes final in 30 days, a situation that is sure to touch off another round of bargaining that might yet salvage the deal. BHP last night said it was "disappointed, but continues to believe that the offer is of benefit to Saskatchewan, New Brunswick and Canada".
There have already weeks of negotiations between BHP and the government about how the mining giant should shape its offer, the biggest takeover bid of 2010. Mr Clement said, "Canada must continue to be a trading nation with a free market," adding that "when done right, reviewable foreign direct investment is a key factor in the success of our economy." But he went on: "Canada is also a place where its national government must do the right thing when faced with difficult decisions... Our natural resources are important economic drivers. I know that we must be careful stewards of those assets, combined with the provinces under their constitutional jurisdiction."
Under the Investment Canada Act, a foreign takeover must have a net benefit for the country in terms of jobs, exports, production and investment. In the Act's 25-year history, 1,637 deals have been waved through, and just one rejected. That was in May 2008, when the government ruled against the proposed sale of the nation's largest satellite and space robotics company, Macdonald, Dettwiler and Associates to a US company.
The current minority government has come under mounting pressure over the BHP deal, however, and a recent opinion poll recorded just 7 per cent in favour of approving the takeover. Its rejection none the less shocked analysts and finance professionals.
John Stephenson, senior vice-president at First Asset Investment Management in Toronto, said: "It goes in the face of the direction of the government of Canada for the last number of years, which is we're open for business. Clearly, we're sending a signal that no, we're not."
Potash shares slid 5 per cent, but still remain above the level of the BHP offer, which was rejected by Potash management in August for being too low. While the company's financial advisers have been seeking a white knight bidder, and its legal advisers have launched a lawsuit against BHP, company managers have argued it has rosy prospects even on a stand-alone basis. It is the world's largest supplier of potash, a mineral used to fertilise crops, and rising grain prices have prompted huge demand for fertiliser and pushed up its most recent quarterly profits by 62 per cent.