Legal news and trends for Canadian in-house counsel and c-suite executives
Issue link: https://digital.canadianlawyermag.com/i/50879
In the meantime, lawyers have been forced to do some guesswork on what foreign companies must do to receive the government's approval for a take- over bid. "You need to, early on, be thinking about government-relations strategy, public-relations strategy," says Fraser Milner Casgrain LLP Toronto partner Sandy Walker, who is a leading expert on the ICA. "You have to be thinking about what's the message you want to get out to your shareholders and to the public, and you also have to be thinking about making contact with govern- ment, and selling them your message on why the deal would actually be good for Canada." Much of in-house counsel's work on this type of matter, explains New, involves plenty of in-depth research. He says the best way for counsel to put their company's best foot forward is by developing a thorough understanding and analysis of the proposed takeover. At the same time, it now appears that counsel representing foreign investors looking to acquire a Canadian company will have to be more vigorous in their advocacy. "When you're sitting down in your initial strategy sessions and your planning sessions, you have to focus on the strengths and weaknesses of your bid or your offer, in the context of the net-benefit test under the Investment Canada Act," says New. That means more focus must be placed on the ability to demonstrate a clear correlation between the transac- tion and a marked economic benefit to Canada, adds New. "You've got to say, 'Where are we going to in this particu- lar industry, what are the sensitivities, what are the weaknesses of our bid, what are the strengths of our bid, and how are we going to sell this?'" He also urges companies to get their story into the press and to government decision- makers as soon as possible. Waiting too long may give opponents the bid time to create a narrative for the transaction that, accurate or not, could become a significant roadblock. The MacDonald Dettwiler bid dem- onstrated Ottawa's continuing concern 24 • FEBRUARY 2011 on Foreign Investment in the United States, a multi-agency panel chaired by the treasury secretary, purports to deal only with foreign acquisitions that threaten national security. However, this national security provision can be applied quite broadly. Everything from energy to critical infrastructure and technology could be swept into its net. The U.S. is just one of several key free- over transactions involving foreign companies with potential national secu- rity implications. Those issues should be canvassed early on, and a determi- nation must be made as to whether the bid has a good chance of proceeding, says New. If that research turns up significant concerns, the bid should be put aside. Just as the international invest- ment community is wondering what's changed with Canada's foreign-in- vestment regime after the BHP rejec- tion, Canadian companies are won- dering what it could mean for their own plans to grow abroad. Many fear other countries will take a firmer stance against Canadian investors seeking for- eign acquisitions in retaliation for the Canadian government's recent inter- ventionism. But a closer look reveals this country's stance toward foreign takeovers is, perhaps, far less threaten- ing than that taken by other countries. The American approach to foreign investment took a hit in 2006 when the state-owned Dubai Ports World attempted to acquire a company hold- ing management contracts to six major U.S. ports. DPW eventually sold the properties to a subsidiary of American International Group Inc. after U.S. poli- ticians moved to block the deal through legislation. "That's the type of case that seems to go well beyond national secu- rity concerns," says FMC's Walker. "It was managing ports, it wasn't relating to the production of some piece of weaponry for the U.S. army." While the U.S. political process can serve as a hurdle, the Committee INHOUSE market economies that have faced criti- cism for blocking foreign acquisitions. Australia's Foreign Investment Review Board, for example, was slammed in 2001 for blocking Royal Dutch Shell Group's takeover of the petroleum com- pany Woodside Petroleum Ltd. based on national interest concerns. Japan too has come under attack for creat- ing informal barriers to international players seeking access to its domes- tic economy, largely due to the over- whelming influence of the country's keiretsu system of corporate affilia- tions. The European Union has been accused of informally blocking foreign investment, especially in the telecom- munications sector, through a complex series of regulations. France has faced accusations of economic nationalism for moves such as listing multination- al food production company Groupe Danone S.A. as a "strategic industry" in an effort to block a 2005 takeover by PepsiCo Inc. "In one way or another, there are foreign investment restric- tions in a lot of countries," Walker says. Unfortunately for Canada, however, the BHP rejection is the latest blocked deal to gain international prominence, putting this country's approach in the spotlight for the time being. Most commentators have certainly been surprised to see the investment act, once considered an afterthought by the legal community, get its own 15 minutes of fame. Foreign investors have rarely given much thought to its provi- sions. "Four or five years ago, if you said foreign investment act to anyone, they would yawn," remarks New. They're not dozing off anymore. Not after it caused BHP to throw away about $100 million in legal and advisory fees in its blocked bid for PotashCorp. IH